Apple (AAPL 0.64%) has a captive and loyal customer base. And with the success of the more-expensive iPhone 6 Plus so far, this is now more certain than ever. The company's ability to easily convince so many customers to pay up a higher price for the larger device is a testament to the pricing power that has made the tech giant an excellent investment for buy-and-hold investors for years.
iPhone 6: Image source: Apple.
Just how well is the iPhone 6 Plus selling?
The 5.5-inch iPhone 6 Plus is expected to account for a whopping 60% of iPhone 6 sales, according to a report from Digitimes, citing industry sources with access to part shipments and major Apple suppliers Foxconn and Pegatron. The other 40% of iPhone 6 deliveries, of course, are sales of the smaller 4.7-inch iPhone 6.
iPhone 6 Plus sales at 60% of new iPhone sales is an important trend worth noting. First of all, considering that the 6 Plus starts at $100 higher than any other iPhone ever sold, the sales should help Apple's year-over-year revenue comparisons. But, more importantly, the extra $100 could help Apple achieve higher profit margins on the device, and boost the company's bottom line -- even after the extra part costs associated with the larger phone are considered.
Indeed, figures from supply chain researcher IHS provide evidence that the iPhone 6 Plus is a more profitable iPhone than the 6. Based on the researcher's estimate of component bill of materials, or BOM, and manufacturing costs, the iPhone 6 Plus should boast profit margins in the range of 100-200 basis points higher than those for the iPhone 6.
Apple's profit margins may move higher
The average selling prices of Apple's iPhone lineup could be higher this year for more reasons than the availability and success of a more expensive model. The new breakdown of storage capacities for the latest-generation iPhones could also play a role in upselling customers to higher dollar versions of the devices.
Contrary to previous iPhone launches with capacity options of 16 GB and 32 GB, Apple now offers 16 GB, 64 GB, and 128 GB options, creating a better value proposition for users to buy higher-priced 64 GB and 128 GB versions instead of the entry-level 16 GB iPhones.
iPhone 6 and 6 Plus design. Image source: Apple.
Apple should have no trouble convincing its loyal customer base to pay up premium prices for the 6 Plus and higher storage capacities of the latest iPhones. Pricing power has worked in Apple's favor for years. Consider the mature PC industry, where Apple's computers still have an average selling price that is more than twice the average selling price of the rest of the industry. And this phenomenon persists even as Apple's Macs continue their long trend of gaining share on the rest of the PC market. Apple is also maintaining clear leadership in pricing power in its tablet category with the iPad.
Will the same pricing power that already appears to be evident with the iPhone 6 Plus carry over to Apple's foray into wearables with the Apple Watch? This is a possibility. The watch, which Apple has said will have a starting price of $349, is likely to have high-end models that are priced above $1,000. If Apple could capture a similar average selling price with this line as it does with iPhones, we could witness the company's pricing power legacy live on in yet another generation of Apple devices.
