The iPhone is Growing Again -- Here's How

Last quarter, the iPhone broke a trend of three consecutive quarters of unit declines, thanks to the launch of the iPhone 7 and 7 Plus. In this segment fromIndustry Focus: Tech, Motley Fool analystsDylan Lewis and Evan Niu, CFA discuss how Apple's (NASDAQ: AAPL)most important business is faring.

A full transcript follows the video.

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Dylan Lewis: Why don't we hopright into the iPhone segment? This is really where they're making most of their money.

Evan Niu:Yeah. They sold another record of 78.3 million. The last three consecutive quarters, they put up negative growth. So, theyput an end to that trend. Of course,this creates another tough comparison for next year, raises the bar for a year from now. But, personally,I wasn't that impressed with the iPhone 7as a product.

Lewis:Do you own it?

Niu:No. It'sthe first time in eight years that I haven't upgraded my phone.[laughs]

Lewis:I don't ownthe iPhone 7 either, so don't feel bad.[laughs]

Niu:But, literallyevery year I've been upgrading, this is the first time I'm not,because I just didn't think it was that compelling. But,obviously the market really does. Part of it is that the 7 Plus is really the hot seller this quarter.Apple even acknowledged thatthey did a poor job predicting demand. They allocated less than they should have to the 7 Plus production. There'snot really a killer feature in the iPhone this year. Arguably, the biggest thing is the dual camera systemthat is specifically for the 7 Plus. So,it seems like a lot of people are picking that bigger phone. I think it costs $120 extra now. You can see it in the numbers. They put up really strong results here.

Lewis:Yeah. AndI think you really see that when you look at average selling price. That grew to $695in the most recent quarter,up from $619 in the previous quarter. And a lot of that is the 7 Plus model, andconsumers clearly voting for the better camera,and being willing to pony up a little bit more dough for it.

Niu:And/orextra storage, because those things shoot 4K video,and you need a lot of storage to store all that.

Lewis:Yeah.absolutely. So, if you put those two numberstogether, the units and average selling price,you get roughly $54.5 billion in revenue. So,right now, we're looking at the iPhone segment making up about70% of revenue for Apple for this quarter. Higher thanit's been in the past, but not necessarily surprising,because the iPhone segment was so massively popularand so successful this quarter.

Niu:Yeah. They were so supply constrained theentire quarter. They acknowledged that they didn't meet supply-demand balance until January. So, they were pretty short oninventory throughout the entire quarter. To still be able to hit these numberseven with constraints and,arguably, not a super strong feature set --I was kind of blown away, honestly.

Dylan Lewis owns shares of Apple. Evan Niu, CFA owns shares of Apple. 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. The Motley Fool has a disclosure policy.