To say Apple's (AAPL 0.86%) iPhone is important to the company's investment thesis is an understatement. The device was responsible for 68% of Apple's top line in the most recent quarter after years of torrid year-on-year growth. The company's performance is so tethered to the product that Apple added single-product dependence into the company's risk disclosures last year.

Last quarter, that growth came to a grinding halt. When it comes to units sold, Apple eked out a year-on-year growth figure of a disappointing 0.4%. On a revenue basis, Apple did report iPhone growth of 0.9% on a year-on-year basis on the back of a 3% growth in average selling prices, growing from $687.30 per unit to $690.50 in the recently reported quarter. When compared to earlier revenue growth rates of 50%-plus, however, Apple's first-quarter performance looked bleak.

Data source: Apple's quarterly statements. Revenue figures in millions. Note: Apple's first fiscal quarter is Gartner's fourth calendar quarter.

Apple CEO Tim Cook discussed a tougher path forward during the conference call by admitting that the company expected a year-on-year iPhone unit shipment decline in the second fiscal quarter, but research firm Gartner estimates that actually occurred last quarter.

It's all about channel inventory
Gartner says that in the last calendar quarter of 2015, Apple sold 71.5 million iPhones to end users, compared to the 74.8 million that Gartner reported Apple sold in the last quarter of 2014. That's a year-on-year decline of 4.4% and compares to the small bump -- 74.8 million versus 74.5 million in the prior year's corresponding quarter -- that Apple reported. The divergence between Apple's 0.4% gain and Gartner's 4.4% decline is relatively large, and deserves an explanation.

The big difference between the two is that Gartner estimates sales to end users, while Apple reports both sales to end users and shipments to retail partners -- the latter of which is what Apple CFO Luca Maestri referred to as "channel inventory" during the conference call. This is the inventory on shelves at retail partners to be sold on demand.

During the conference call, Maestri admitted as much by acknowledging channel inventory increased 3.3 million units during the quarter. If you include the increase of channel inventory, Gartner's unit-shipment figure matches Apple's reported figure.

What to make of an increase in channel inventory?
For investors, channel inventory should be monitored in addition to revenue figures. On one hand, a significant increase in channel inventory could be interpreted as a bullish signal that the company expects a large increase in demand for its products. On the other, large increases in channel inventory without corresponding sales to end users is a signal that the company misjudged demand, and will eventually be required to cut future prices, or slow production until those products are sold to end users.

There are already hints that Apple has done the former. An earlier Reuters report claims that Apple supplier Foxconn (NASDAQOTH: FXCNY) cut working hours over the week-long Lunar New Year due to slowing iPhone demand. According to Apple, the company is now on the low end of its target five-to-seven weeks of iPhone channel inventory.

Investors should watch Apple's channel inventory closely going forward when judging iPhone unit and revenue performance.