It's difficult to overstate how important iPhone sales are to Apple's (NASDAQ:AAPL) results. Representing about 63% of revenue and an even larger portion of the company's bottom line, its smartphone business is absolutely crucial to its financial performance. Because of its scale, it's important to keep tabs on the tech giant's largest business segment to see how it's doing and where it could be headed.
So, how many iPhones could Apple sell in fiscal 2016?
During Apple's fiscal 2015, the company benefited from the iPhone 6 launch. As its first foray into smartphones with displays larger than four inches, the iPhone 6 and iPhone 6 Plus tapped into an obvious consumer trend toward preferences for larger screen sizes. As a result, the company sold more than 231 million iPhones, up about 37% from fiscal 2015 iPhone sales.
Apple also benefited in fiscal 2015 from a higher average selling price for its iPhone line, which helped iPhone revenue increase faster than iPhone unit sales. This also strengthened its gross profit margin.
Apple's rising average selling price, which in the most recent quarter was $670, compared to $603 in the year-ago quarter, is driven by more higher-priced options for the iPhone. Not only did it introduce an iPhone with a higher starting price (the iPhone 6 Plus), but Apple also introduced higher-priced storage options.
But will the growth level off?
While Apple's iPhone 6s line is looking like it will attract plenty more new customers, as well as compel many iPhone users to upgrade, it's unlikely Apple will be able to grow the business nearly as fast in fiscal 2016 as it did in fiscal 2015.
The evidence begins with Apple's own expectations. Going into its first fiscal quarter of 2015, the company guided for 12% year-over-year revenue growth for the quarter, indicating management's robust view of initial iPhone sales during the quarter, as well as its confidence in iPhone demand and production ramp. This year, however, Apple's guidance isn't as rosy. It expects first-quarter revenue for fiscal 2016 to increase about 2.5% from the year-ago quarter, signaling less confidence in the growth potential for the iPhone 6s line.
Sure, Apple's revenue guidance isn't for its iPhone business alone. But with the segment by far its largest, and given that its iPad business is declining and its Mac business is growing only very slowly, management's guidance for revenue provides a window into its expectations for iPhone sales growth.
Achieving growth in its average selling price during 2016 will also be difficult, as the company didn't introduce any new higher-priced options for its iPhone models with the iPhone 6s.
So, how many iPhones could Apple sell in 2016? Investors shouldn't expect much growth. A mid-single-digit percentage increase for fiscal 2016 iPhone sales compared to fiscal 2015 iPhone sales seems likely. This would put total iPhone sales for fiscal 2016 around 242 million.
Fortunately, Apple doesn't need very much growth -- if any at all -- to live up to its current valuation. Thanks to an undervalued stock, even flat growth for Apple's total business could be enough for investors to earn a meaningful return on their investment over the long haul.
Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.