Later this year, Apple (NASDAQ: AAPL) is expected to launch not just two, but three new flagship smartphones. Two are believed to be enhanced versions of the iPhone 7 and iPhone 7 Plus smartphones that are currently in the market, and the third is expected to be a "premium" model with a whole host of unique features such as a full-face OLED display, 3D sensing, and perhaps much more.
The only reason that Apple is going to be able to offer that so-called premium model is that the base model is said to start at $999 -- $350 more than the base model of the iPhone 7, and $230 more than the base model of the larger, more feature-filled iPhone 7 Plus.
Continue Reading Below
Simply put, because Apple is charging more for the device, it can cram in more expensive components without hurting the company's overall gross profit margin profile.
It's a win for consumers, and it'll be a win for Apple's upcoming product cycle.
If Apple plays its cards right, though, Apple can use this one big advantage to substantially grow its revenue and its share of the premium smartphone market in the years ahead.
Apple can charge what others can't
Apple is arguably the best-known brand in the world of smartphones, something that has likely contributed to the company's ability to capture the bulk of the premium smartphone market, and as a result, most of the smartphone industry profits.
If we work under the assumption that Apple does, in fact, have incredible pricing power in the smartphone market (something that I think will become undeniable as Apple's upcoming product cycle plays out), then it's not hard to come to the following conclusion: Apple can build and sell devices at even higher price points than it does today (or even will with the iPhone 8), and still sell tens of millions of them.
Of course, I'm not saying that Apple can just jack up prices without delivering commensurate value through new features, higher-end components, and so on. What I am saying is that Apple can build devices with many unique and relatively expensive components crammed in and charge more for the devices.
And, if those features are worthwhile, many of Apple's customers will be willing (if not downright eager) to pay up.
How Apple can avoid copycats
Apple can also leverage its ability to charge more for smartphones than what other vendors could successfully charge to fend off copycats.
Apple has increasingly been building technologies in-house, which presumably means that the first time Apple's competitors see the in-house technologies that Apple spent years to develop is when devices utilizing those technologies hit the store shelves.
Simply creating components in-house can give Apple a one- to two-year lead over its competitors in some cases before merchant component vendors ultimately develop and offer similar technologies to any smartphone vendor willing to pay up.
However, if Apple builds unique and compelling in-house technologies that are expensive to manufacture and could only be supported by the bill of materials of relatively expensive devices, then it could be difficult for Apple's competition to follow -- at least within a time frame that'd be relevant to Apple's business performance.
Most smartphone vendors don't have the kind of high-end smartphone unit/revenue scale to justify building copycat technologies in-house, and merchant component vendors may be hesitant to do the work to build their own versions of the technology until it can be done cost-effectively enough to address large portions of the premium non-Apple smartphone market.
In this case, by the time Apple's competitors are able to catch up (which could be a matter of multiple years), Apple is already on to the next big thing for the iPhone.
10 stocks we like better than AppleWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Apple wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 1, 2017