Apple’s Holiday Quarter iPhone Hat Trick
As is often the case, Apple was able to quiet rumors of the iPhone sky falling by announcing stellar results during its quarterly earnings call that put the company at the top of the market in terms of smartphone shipments, average selling price (ASP), and revenues. While total iPhone shipments were down slightly from the year-ago quarter, that doesn’t tell the whole story. Based on IDC’s preliminary numbers for the quarter, Apple shipped more smartphones than any other vendor at 77.3 million units (Samsung shipped 74.1 million). That’s a 1.3% Apple decline versus the broader market that slipped 6.3%. Importantly, Apple shipped these volumes while enjoying an ASP that increased by more than a $100 from the year-ago quarter, driven by strong sales of its iPhone X, 8, and 8 Plus. That means the company drove smartphone revenues of $61.6 billion, to lead the market. Not bad for a quarter when your marquee product started shipping in November.
Apple’s ASP Increases
Apple’s ability to dramatically increase its ASP year over year in a slowing market is impressive. Over the last few years, Apple has repeatedly introduced new iPhones with higher selling prices. While this usually results in an ASP spike during the initial quarter, things tend to fall back in subsequent quarters. But there’s not always a clear pattern to this rise and fall. For example, in 2017 the third fiscal quarter (second calendar quarter) was Apple’s second-highest at $703. For the total year of 2017 Apple’s ASP was $707, up from $647 for the full year 2016, which was down from the previous full-year ASP of $671.
To put Apple’s recent ASP performance into perspective, let’s look at Samsung’s numbers. While Apple out shipped the company in the holiday quarter, Samsung still shipped more smartphones in total for 2017 (317.3 million units versus Apple’s 215.8 million). But Samsung’s ASP has headed the opposite direction. Based on IDC’s data (Samsung doesn’t publicly announce units or ASPs), the company’s calendar-year third quarter ASP was $327 (Note: we don’t have 4Q ASP yet). For the first three-quarters of 2017 combined, Samsung’s smartphone ASP was $313. That’s down from $319 in 2016, and $344 in 2015. (Samsung’s ASP tends to spike in calendar Q2, around the launch of its latest flagship Galaxy S phone).
It’s worth noting that Samsung isn’t the only smartphone company with declining average selling prices, and Apple isn’t the only one with year-over-year increases. In fact, many of the top ten smartphone vendors have managed to increase their ASPs year-over-year through three quarters of 2017, but none have managed to increase so dramatically as Apple. And of course, none are operating at its scale.
Continued ASP growth?
So the question becomes, can Apple maintain or grow its iPhone ASP in 2018, or has it reached the top of the mountain? There are a number of factors to consider, including some things that are unique to this year’s market. One key question is whether everyone who wanted an iPhone X, and who could afford it, already bought it in the fourth quarter. This seems unlikely. While Apple sorted supply constraints quickly after launch, there were undoubtedly some who looked at early wait times and opted to hold off until the dust settled.
Another new wrinkle this year was Apple’s launch of three new phones instead of two. While the iPhone X has the highest ASPs, the iPhone 8 and 8 Plus also carry high prices and were a major driver in Apple’s quarterly increase. In past years Apple launched two new flagship phones, so we’re in uncharted waters with three, which means even as shipment mix shifts in subsequent quarters, the ASPs may hold nearer to the top than in the past.
Another element is Apple’s ongoing iPhone battery life public relations challenge. During the earnings call, one analyst asked Tim Cook if he felt Apple’s battery-replacement program might incentivize buyers to get a new battery for their existing phone and to hold off on buying a new iPhone. This might impact total iPhone shipments to a slight degree, but as wise folks have noted, these customers probably weren’t on the verge of buying a new top-line iPhone anyway. (Cook said Apple was more concerned about taking care of customers than worrying about its impact on future shipments.)
The bigger question for me is how Apple will price the new phones it will launch later this year. Supply-side chatter suggests that there will likely be at least one new X-class phone with a larger screen than today’s 5.8-inch product. Can Apple sell this phone at an even higher ASP than today’s iPhone X, or will it need to price this larger phone at today’s top-end and lower the price of the iterative 5.8-inch product? Also, do the 8 and 8 Plus get refreshed, or do they stay the same and see a price drop? My gut tells me the company may have maxed out its ability to raise the top-end price, but it has surprised me before so only time will tell.
The next several quarters should be instructive in this regard. If Apple’s ASPs drop significantly over the next six months, indicating a mix shift away from the top end, Apple will have a good sense of what the market will support. In the meantime, we have Samsung’s Galaxy S9 launch to watch later this month. How Samsung markets and prices this phone should be instructive, too.