Apple (NASDAQ: AAPL) experienced a temporary dip in iPhone average selling prices (ASPs) over the summer, largely because of the introduction of the $400 iPhone SE. Heading into the holiday quarter, Apple expects ASPs to jump back, and fulfilling iPhone 7 Plus demand will be the key.
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This podcast was recorded on Oct. 28, 2016.
Dylan Lewis: Let's talk a little bit about what they reported in terms of numbers. Maybe we'll get into some of the product discussion a little bit later on -- $46.8 billion in revenue on the top line, more or less in line with expectations, down from $51.5 billion a year ago. But that is to be expected, we knew that was coming, no surprises there. Earnings per share at $1.67, which was actually slightly above what expectations were. The two big numbers that people immediately focus on, it seems like Apple delivered a pretty solid quarter.
Evan Niu: Yeah. I think it was right on target. I don't think there were really any big upsides and downside surprises. The way I look at it, this is the most boring quarter of all the seasons, because it's right before the iPhone launched. You get a couple weeks of the new iPhone sales, but generally speaking, Q3 is just not a super exciting time for consumer electronics companies.
Lewis: You mentioned the iPhone. We might as well head in straight into the discussion on that product. The company sold 45.5 million iPhones at an average selling price, ASP, of $619. That amounts to about $28 billion in revenue, good for about 60% of Apple's top line. We've seen that trend down a little bit. I think it's stabilized in the high 50s, low 60s. It isn't quite the two-thirds amount it used to be.
Niu: Yeah. On a trailing-12-month basis, it's still about 63%. It's still pretty far up there. One thing I did notice that was interesting was Apple did not disclose this whole thing about installed base-related purchases that they've been doing for the past three quarters. As we talked about before, there's this effort -- in my opinion -- to shift attention away from unit sales. But they didn't do that this time, which is weird, like, are they not trying to do that anymore?
Lewis: Yeah, any time you introduce a new metric, especially a non-GAAP metric, you're shifting attention somewhere. And for them to go silent on that makes you wonder exactly what's going on there.
Niu: Yeah, it's a weird change of tune. I've been keeping track of this number, and I was expecting to plug it into my sheet, and they just didn't have it.
Lewis: One number I think a lot of people have to be pretty optimistic about is the general trend with ASP. I said $619, that's up from the previous quarter, and it seems like there's some more upside there.
Niu: Right. The main thing to remember is that the reason why it was down over the summer was because of the iPhone SE launch, which starts at $400, which was the lowest price point that Apple has ever sold an iPhone directly, even if you factor in how they bring these older models down by price point every year. The lowest they'd ever gone before was, a three-year-old iPhone would go for $450. Then they came out with the SE, which starts at $400. It was a pretty aggressive play to get smaller phones and first-time adopters, with a lower entry price. That put a meaningful impact on ASPs, which was $595 last quarter, which was the lowest it's been in about two years. They did say on the phone, they expect ASPs to climb back up to where they were last December quarter, which, for reference, was $691. So, I think we should start to see that number start to push $700 again, particularly if they can meet iPhone 7 Plus demand, which they're having a hard time doing, because the iPhone is so expensive, they can increase that price by $20 compared to last year. The 7 Plus will really push ASPs up, I think.
Lewis: And part of the justification with that incremental $20 on the price point was the camera. That was the major selling point, and that's how management pointed to that decision.
Niu: Yeah. They specifically said it was the camera. They were asked about it, and they were like, "We put a ton of Innovation into the dual-camera system." I do think that is very specifically what's the reason for that $20.