When Apple Inc. (NASDAQ:AAPL) first introduced its new, big and bigger smartphones — the iPhone 6 and iPhone 6 Plus — the company opted to offer a few minor features for buyers of the largest model. The 6 Plus had longer battery life, and an image stabilized camera. That basic strategy continued with the 6s Plus in 2015. But last year with the iPhone 7 Plus, AAPL included a more significant carrot in the signature Dual Camera feature.
The move of making a key feature exclusive to its larger phones appears to have paid off with a big increase in iPhone 7 Plus sales compared to regular iPhone 7 sales.
Having more of the costlier iPhone 7 Plus models in the mix means AAPL can generate more revenue, even if overall unit sales are soft.
Differentiating Between Big and Bigger
Historically, the larger-sized iPhone hasn’t sold nearly as well as the “standard” 4.7-inch model.
When AAPL first introduced the two model strategy in 2014, the iPhone 6 Plus had an immediate bump in demand from Apple fans who were hungry for a phablet. It was also very popular in Asian markets, where phablets, which can take the place of both smartphone and tablet, are often preferred. However, overall the bigger and more expensive iPhone 6 Plus only accounted for around 20% of overall iPhone sales globally.
In 2015, AAPL added a little more appeal to the bigger iPhone, adding increased RAM to the optically image stabilized camera for the iPhone 6 Plus. However, that saw just a small uptick in sales of the bigger model.
Last year, Apple rolled the dice: It decided to release a dual camera smartphone, a premium upgrade that it heavily promoted as a must-have feature. With this advanced camera system, users could take DSLR-like portraits and optically zoom in on subjects. AAPL made this key feature an iPhone 7 Plus exclusive, at the same time boosting the price of its larger iPhone. Previously, it had charged $649 and $749 respectively for the two sizes. In 2016, the company still started the iPhone 7 at $649, but to get the dual camera smartphone feature required shelling out at least $769 for the iPhone 7 Plus.
iPhone 7 Sales See Big Increase in iPhone 7 Plus Adoption
The Wall Street Journal is reporting that Apple’s iPhone 7 Plus strategy appears to have paid off. Citing numbers from Cowen & Co. UBS, Cowen and Creative Strategies Inc., the WSJ says that in AAPL’s first quarter (ending in December), the iPhone 7 Plus is estimated to have accounted for 40% of total iPhone 7 sales, globally.
Breaking the numbers down regionally, it’s estimated that 52% of Chinese iPhone buyers opted for the more expensive iPhone 7 Plus, while in the U.S. it accounted for 47% of total iPhone 7 sales.
Why Increased iPhone 7 Plus to iPhone 7 Sales Matter
The difference between the two iPhone models is material to AAPL’s bottom line.
It’s likely that the iPhone 7 Plus costs Apple more to manufacture than previous Plus versions — it does have more RAM, a larger battery and that dual camera system — but at least some of the additional cost is offset by the boost from $749 to $769.
The profit margin for Apple on the iPhone 7 and 7 Plus probably remains roughly the same. However, with a base price that’s $120 higher, having more Plus models in the mix means that even if overall iPhone 7 sales are soft, the average selling price of a new iPhone goes up. As a result, iPhone revenue could get a boost, despite sales that may not meet expectations.
And, as the WSJ article points out, there’s another positive point for AAPL in the iPhone 7 Plus numbers. The fact that pricing the iPhone 7 Plus so high still resulted in big gains for the premium smartphone bodes well for later this year when the company will release the 10th anniversary iPhone 8. The iPhone 7 sales numbers indicate that AAPL has additional room to price the iPhone 8 as an ultra-premium, special edition model if it chooses.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.