3 Reasons Apple Inc. Could See iPhone Average Selling Prices Rise

By Markets Fool.com

Image source: Apple.

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On Sept. 7, Apple (NASDAQ: AAPL) took the wraps off its next-generation iPhones: the iPhone 7 and iPhone 7 Plus. Although the cosmetic changes to these phones weren't huge, the devices represent a very solid step forward for iPhone and, indeed, the premium smartphone in general.

The success of Apple's iPhone business is really a function of two key metrics. The first is straight-up unit shipments -- after all, all else equal, the more iPhones Apple sells, the better. However, the business also depends on the average selling prices of those phones -- the higher those are for a given level of unit shipments, the better off Apple's revenue and gross profits should be.

Although it's too early to tell what the unit shipment story for iPhone 7 is going to look like, there are early signs that the average selling price story could be quite positive for Apple during this product cycle. Here are three reasons why.

The larger iPhone gets an additional interesting selling point

With the iPhone 6 and 6s and their Plus counterparts, the differentiation between the smaller iPhone and its larger sibling was fairly limited. The bigger models had slightly sharper displays and a few additional (but relatively minor) camera features, and they were a little bulkier.

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The choice between the smaller and larger models, at least for those two generations of products, really boiled down to screen-size preference.

With the iPhone 7 generation, Apple has differentiated the two models a little more aggressively. The iPhone 7 Plus sports an innovative dual-camera setup, which means from a camera feature perspective, the larger model is the clear one to get.

Though this might not seem like much, the camera is easily one of the most important parts of a smartphone. Based on that, I think that the dual camera might be enough to get potential buyers to step up to the larger model this time around.

For a given amount of storage, the larger iPhone is $120 more expensive than the smaller one, so a mix shift toward the larger iPhone as a result of this new camera feature could drive average selling prices up year over year.

The Jet Black factor

With the iPhone 7 and 7 Plus, Apple introduced two new casing colors -- black and "jet black." The jet black version, according to Apple, "is accomplished through an innovative nine-step process of anodization and polish for a uniform, glossy finish."

Interestingly, Apple is offering this "special" jet black model only in iPhone configurations with 128 and 256 gigabytes of onboard storage. If this model becomes particularly popular with customers,Apple could enjoy a richer product mix. And given that pre-orders of the iPhone 7 Plus in jet black from Apple's online store aren't expected to ship until November, it is likely that it will be quite popular.

More RAM

Both the smaller and larger iPhones have traditionally come with the same amount of system memory: 1 GB in the case of the iPhone 6 and 6 Plus, and 2 GB for the 6s and 6s Plus. It's widely believed that this time around the larger iPhone will get 3 GB of memory while the smaller version will have only 2 GB.

This isn't likely to matter to most consumers -- after all, Apple doesn't even market the amount of memory it includes inside its phones. However, the more tech-savvy buyers will likely learn of this from reading reviews or looking at tear-downs of the devices. The additional memory in the larger model could be attractive to some of those customers.

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.