How did Apple make money on the iPhone 14/Pro series?

Apple has long been well versed in the art of upselling. With global inflation high and supply chain challenges facing the iPhone 14, the iPhone 14 could be Apple's biggest test of stopping consumers from downgrading. At Wednesday's event, Apple also unveiled a batch of new Apple Watches and updated its long-awaited AirPod Pro headphones. Those products will be the backbone of Apple's wearables business, which currently generates more than $40 billion in annual revenue.

However, the iPhone was still the focus of the conference. Apple still generates more than half of its revenue from smartphones, so it can't afford to put its signature product into the kind of woes that have plagued the rest of the smartphone industry. Global smartphone shipments fell 10 percent in the first half of this year compared with the same period last year, according to data from well-known research firm IDC, with Apple performing better than most companies. But with inflation rising and the economy slowing, iPhone buyers may be more discerning than ever as they spend thousands of dollars.

Plus Code Pro Series

Now, consumers have many choices. Apple is now selling 26 different configurations for the newly released iPhone 14 series, up from 16 of its new phones five years ago. Prices for the iPhone 14 series range from $420 to nearly $1,600, with the most expensive even more expensive than some of Apple's Macs.

Apple's solution is to reserve more power for the most popular models. The iPhone 14 series breaks Apple's long-term model of equipping its latest phones with the latest self-developed chips, and only the iPhone 14 Pro models can use the latest A16 processor. The base iPhone 14 will be powered by the A15 chip that Apple introduced in the iPhone 13 series last year. Apple also added a larger-screen option to the base version with the launch of the iPhone 14 Plus, effectively phasing out the Mini models of the previous two generations of phones. Research firm Canalys estimates that only 9 percent of all iPhone 13 owners opt for the Mini model.

The average selling price of the iPhone hit a new high

For Apple, launching the Plus model and cutting the Mini could increase the average selling price of the entire iPhone lineup by about 3%. At the same time, dedicating the latest chips to the Pro series may add more sales momentum to the product line. Apple debuted the Pro model in 2019, giving it a more powerful camera and a more advanced body design.

The Pro series has become popular among fruit fans. According to Canalys, Pro models have accounted for 41% of iPhone 13 series shipments since the iPhone 13 series was released last year. By comparison, Pro models accounted for 31% of total iPhone 11 shipments two years ago.

Add a storage space profit of up to 90%

This strategy has helped Apple generate more revenue from each phone sale. According to the data analysis platform Visible Alpha, according to the consensus of analysts, Apple has sold 189.2 million iPhones in the three quarters since the release of the iPhone 13. The iPhone generated about $163 billion in revenue during the same period, and the average selling price was about $861, a record high and 12% higher than the average selling price in fiscal 2019 before the first Pro models were launched.

The iPhone Pro models may also help Apple implement its oldest method of upselling: storage space. The more powerful cameras on the Pro models may prompt some buyers to opt for higher-storage configurations. It is profitable for Apple for consumers to buy more expensive products.

According to Apple's configuration design, the same model has multiple storage space options, and the larger the capacity, the higher the price. Taking the iPhone 14 Pro as an example, the upgrade from 128GB to 256GB requires an additional price of 900 yuan, and the upgrade from 128GB to the highest 1TB requires an additional price of 4,500 yuan.

Toni Sacconaghi, an analyst at investment bank Bernstein, estimates that Apple could make a 90% gross margin on the difference in storage space on the same model. Apple's product gross margins hit nearly 37% in the first nine months of the fiscal year, the highest in a comparable period since the company began reporting product and services margins in 2018.

At this point, Apple's recession-avoidance approach boils down to getting more consumers to buy extra storage.

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