Previous record was $647 in the December 2011 quarter
For the past three fiscal years Apple’s December quarter has had the highest iPhone ASP. This is largely due to initial buyers opting for higher memory models and this year should be no exception.
For the previous three years (December 2011, 2012 and 2013) the iPhone’s September to December quarter ASP increase has been 4.1%, 3.7% and 10.3%, respectively. In dollar terms the increases have been $25, $23 and $60, respectively. In the September 2014 quarter the iPhone’s ASP was $603 so to hit my $690 estimate the sequential ASP change needs to be 14.4% or $87.
One sign that Apple’s iPhone ASP could rise so much is that in the September 2014 quarter the ASP increased by 7.5% and this is with the iPhone 6 and 6 Plus only being available for 9 days. In the previous three years the June quarter to September quarter iPhone ASP increase has been negative 3.6%, an increase of 1.8% and a decrease of 0.7%, respectively.
I have built a model with three scenarios on what percentage Apple’s iPhone 6 and 6 Pluses were sold along with various memory configurations. I also adjust for previous models based on the previous year’s projection vs. actual. While it is a fairly straight forward model (all cases assume 75% iPhone 6’s and 25% 6 Plus’s) and I only change the memory percentages the overall results are close to each other. The results average to an ASP of $689 which I rounded to $690. I have developed a Google Doc that has the assumptions and results via this link.
One indication of memory mix is Japan’s iPhone sales
I have been following iPhone sales in Japan via the BCN website which tracks smartphone sales. Besides Apple’s iPhone 6 being the dominant smartphone in the December quarter the 64GB models have held the top position all three months and two of the top three. While I don’t have any market share percentages I believe it does show the strength of the 64GB versions.
My September quarter ASP projection was only off by 1%
I had calculated that Apple’s September quarter’s iPhone ASP would be $610 (compared to $561 in the June 2014 quarter) and the actual result was $603. This compares to the $578 estimate that I had compiled from 8 sell-side analysts.
Current sell-side projections are $660 for the December quarter
I have projections from 16 sell-side analysts for this quarter and their average iPhone ASP is $660 with a range of $618 to $722. If you exclude the high and low the average is $658. While many analysts are alluding to higher ASPs at $660 this would only be a 3.6% quarter over quarter increase, which I would be stunned if it came in this low.
There are a lot of factors that affect ASPs, most of which we can’t get a good read on such as:
- International pricing: many countries higher and some lower than the US
- Exchange rates have moved dramatically this quarter
- Model mix and not just of 6 and 6 Plus but how many of the earlier iPhone models are being sold in various geographies around the world.
- Memory mix
- Supply constraints
The stronger dollar is a headwind
The US dollar saw a dramatic strengthening during the quarter, which has continued into January. As can be seen in the chart below starting at the beginning of October the US dollar index was about 86 and rose to 91 by the end of December, a 6% move. With international markets generating about two-thirds of Apple’s total revenue this could put pressure on iPhone’s ASPs and total revenue (IBM’s currency impact was about 4.5% in its December quarter).
iPhones could generate almost $50 billion in revenue
I am estimating that Apple sold 70.3 million iPhones with an ASP of $690. This would generate $48.5 billion or 68% of my $70.85 billion revenue estimate. Besides shattering last year’s iPhone $32.5 billion in revenue it would also blow away the 57% percent of revenue from the March 2014 quarter.
Gross margins could come in materially above guidance
Such a high percentage of iPhone sales has tremendous implications for gross margins. In the March 2014 quarter gross margins came in at 39.3% vs. guidance of 37.0% to 38.0% when iPhone revenue was 57% of total revenue.
For the December 2014 quarter guidance is 37.5% to 38.5%. I am projecting 38.9% (with iPhone revenue at 68% of total revenue) since the 6 and 6 Plus are a major format change vs. last year the 5c and 5s were not.
If Apple’s iPhone unit sales generate the revenue, ASPs and gross margins I’m estimating it could get some of the bears on the stock to reconsider their position.
