Here’s why Apple Doesn’t Expect Everyone to Buy a $1K iPhone
When you’re at the mercy of one product line, you have to make it profitable enough to carry the company.
PHOTO CREDIT: Getty Images
Apple's reported new $999 price for the top end iPhone 8 is a dangerous moment for the company. There is only so much you can ask people to spend on consumer electronics. When you are completely dependent on one product line, doing anything that might slow sales has to be a huge worry.
After my last piece on the iPhone, a number of people made a point online to tell me that consumers would always pay what Apple wanted. That it was a matter of understanding consumers. And they were right in the sense that, given Apple's market strength, some people, maybe even many, would buy a more expensive model. But far from all.
You can't understand the issue until you look at the history of the iPhones average sales price or ASP -- the amount each one brings in on the average in a given sales period. Below is a graph that shows the iPhone ASP from the first quarter of Apple's 2012 fiscal year to the third quarter of FY 2017, the most recent for which data is available.
First thing to notice is some seasonality. ASP hits its highs in the first quarter of every fiscal year, which is the period roughly from October to the end of December, or the holiday season.
The other thing to consider is the distribution of the values. The high one for the series is $690 while the low is $563. The average is $633.
For years, even as iPhones have become more expensive -- actually pushing that $1000 price tag at the top end for unsubsidized sales -- the average sales price has remained relatively stable. It suggests that people have increasingly shifted toward somewhat cheaper models even as the top end grew, which would be necessary to help keep the ASP stable.
Now comes the second graph as a reminder that iPhone unit sales are at best flattening and may have started to trend downward, with higher peak sales and lower troughs.
The black line is the trend.
CEO Tim Cook and all the other members of the management team are painfully aware of how investors large and small expect constant growth. Because the iPhone is the single largest driver of revenue and profits for the company, an overall trend downward with a relatively constant ASP because a disaster. There is nothing else in the company that can make up the difference.
Driving up the entry level price of a new top line version of the iPhone is risky, in that it may scare off consumers in the U.S. or, more likely, in other markets like China where iPhone unit sales have been more challenged of late. But with pressure on unit sales, given the insufficient success of every other Apple product line to take off the way the iPhone did, facing the prospect of an ASP that doesn't grow would be more of a risk.