It goes without saying that the iPhone is Apple's (AAPL -0.35%) most important product. Since its debut in mid-2007, the iconic device has become the gold standard for smartphones. As a result of that simple truth, the iPhone continues to command a premium price, which is arguably the reason for the company's unbridled success.
Now, it appears, Apple has set a new benchmark that lays the foundation for the company's future success. The iPhone just proved, in the most unlikely of times, users are willing to pay up for the tech giant's flagship device.
Image source: Apple.
Gauges of iPhone demand
Apple long ago dispensed with reporting on just exactly how many iPhones the company sells in a given quarter. When it stopped providing the unit sales metric in late 2018, CFO Luca Maestri said Apple made the decision because the figure was "not representative of underlying strength of our business." He went on to note that "a unit of sale is less relevant today than it was in our past."
As a result of that decision, investors also lost the ability to calculate the average selling price (ASP), a measure of how much users were willing to pay for the iPhone. Before the change, the calculation could be made by dividing the total amount of iPhone revenue (which the company still breaks out) by the unit sales, which resulted in the ASP. This helped investors gauge the strength of demand for the device, rather than simply relying on the total percentage of revenue gains.
Since Apple has introduced more expensive models in recent years, it's difficult for investors to determine how much of its revenue gains to attribute to price increases and how much is the result of gains (or losses) in unit sales.
Fortunately, a helpful third-party market research company still provides reasonable estimates of the iPhone's ASP.
A new all-time high
During its fiscal 2023 Q2 (ended April 1), Apple reported iPhone revenue of $51.3 billion, an increase of 1.5% year over year, setting a record for the March quarter. For context, iPhone sales accounted for roughly 54% of revenue during the period. That's not far off historical averages, as the iPhone was responsible for 52% of Apple's sales in fiscal 2022.
During Q2, the weighted average retail price (WARP) for the iPhone rose to a new all-time high of $988, according to data compiled by Consumer Intelligence Research Partners (CIRP), up 12% from $882 in the prior-year quarter. The researchers are quick to point out that this doesn't take into account the trade-ins or other promotions that may result in a lower price, though this likely doesn't materially change the estimate.
This is made all the more remarkable by the fact that the WARP has declined in each and every March quarter since CIRP began calculating the metric back in 2015. What's more, the economy has been in downturn mode for more than a year now, suggesting iPhone buyers would be more inclined to purchase less expensive models, but the research simply doesn't support that conclusion. In reality, consumers were trading up to the most expensive models, even in challenging economic circumstances.
Why it matters
If the data is at least directionally accurate, it provides some insight into the state of iPhone demand. The research suggests that iPhone unit sales fell to about 52 million in the quarter, down from 57 million in the prior-year period -- a decline of about 9%. That makes sense given the state of the economy.
It also reveals that the remaining iPhone buyers were willing to pony up over $100 more to buy pricier models, spending nearly $1,000 in all for the device -- even in the face of difficult economic conditions.
Dominant profit share
The willingness of Apple fans to pay up for their devices is important for another reason. The company absolutely dominates the competition in terms of profits, leaving its rivals to fight for scraps.
Last year, Apple set a new high-water mark in terms of global smartphone market share, amassing 85% of the profits for the entire industry, according to estimates provided by Counterpoint Research. What makes this all the more incredible is that the tech titan only accounted for about 18% of global smartphone shipments last year, which speaks to the resilience of iPhone demand and the enduring appeal of the device.
This also suggests that when the economy rebounds, as it no doubt will, unit sales of iPhones will likely increase, helping fuel Apple's future growth.
The stock remains a buy.
