When Apple launched the iPhone X last year, some reviewers balked at its price, which starts at $999. Sure, the phone had some innovative new features, including a gorgeous display and FaceID. But was it worth the price?
What’s really driving Apple’s growth?
It’s not “Services.”
Two things have become increasingly clear since then, especially in the context of Apple’s third-quarter results, announced yesterday:
- The iPhone X wasn’t enough to drive a “super cycle” of new and upgrading buyers, as many analysts had speculated before its launch. iPhone shipments haven’t taken off like a rocket.
- The higher price tag has been successful enough to significantly increase the iPhone’s average selling price — and generate the majority of Apple’s recent revenue growth.
Last quarter, iPhone buyers spent an average $724 for their phone. That’s up almost $120 from a year ago, or roughly 20 percent more expensive.
That reflects the success of the iPhone X — “the most popular iPhone in the quarter once again,” Apple CEO Tim Cook said on the company’s earnings call — and perhaps some customers buying up to higher-priced iPhones with more storage to hold more photos, video and music.
(It’s also worth noting that many — if not most — buyers aren’t spending the full amount up front. Many pay off the iPhone’s price in installment plans, so the increased price tag looks more like $10 a month than $120 all at once.)
Still, it was enough to drive Apple’s iPhone revenue up 20 percent last quarter, to nearly $30 billion — despite shipment growth of less than 1 percent, to 41.3 million iPhones. Indeed, this is a trend Apple has been riding since the iPhone X launch: Revenue growth has significantly surpassed shipment growth.
And that’s been enough to drive the majority of Apple’s growth, which has accelerated for the past six quarters — pushing Apple within striking distance of becoming the first company worth $1 trillion.
Many have lauded Apple’s “Services” business — the App Store, Apple Music, iCloud, etc. — and its “Other products” segment — Apple Watch, AirPods, Beats headphones, etc. — as its growth drivers. And indeed, percentage-wise, those were Apple’s fastest-growing categories again last quarter. “Other products” grew 37 percent year over year last quarter, while “Services” grew 31 percent.
But the iPhone category added the most revenue by far, up more than $5 billion, and the majority of Apple’s $7.9 billion of new revenue in the quarter.
This could change again when Apple introduces new iPhones, likely next month. Will cheaper models start to take back more of the mix?
But for now, the iPhone X is working well for Apple. And, apparently, for customers: Cook cited a 98 percent satisfaction score.
This article originally appeared on Recode.net.
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