Apple Has Changed How It Reports iPhone Sales. Why?

A condensed history of iPhone sales: For the first half of its life span, the iPhone was a wildly popular phone. Global iPhone sales roughly doubled every year from 2008 to 2012, going from about 10 million in 2008 to 125 million in 2012. But it’s tough to continue to double sales every year — in order for iPhone sales to keep that pace, in 2018 Apple would have needed to sell roughly 10 billion phones. (Perhaps a “day phone” and “evening phone” strategy?)

Phone sales started to slow their rise from 2013 to 2015, but in 2016 something that had never happened before occurred: Apple sold fewer phones in 2016 than it had sold in 2015. For the first time in 15 years, Apple’s annual profits fell.

By 2016, Apple was essentially a smartphone company with a sideline in selling laptops and iPads, and had a simple but elegant solution to the problem of selling fewer phones: sell more expensive phones. So the price of a new iPhone, which had held roughly steady at $650, needed to come up. One way to increase this was by introducing “Plus” models of phones starting with the iPhone 6 Plus, partly to satisfy market demand for larger phones and partly because larger phones cost slightly more to make, but could be sold to consumers for more.

You saw this plan in full effect last year with the iPhone X, a bold and ambitious piece of engineering that saw Apple jettison the form factor of every previous iPhone and also raise the base price of the iPhone X to $1,000. It also quietly raised the base price of the iPhone 8 from $650 to $700, and did the same $50 bump on iPhone 8 Plus models.

Apple became even bolder with its iPhone lineup this year. The base price for the iPhone XS Max was $1,100, the iPhone XS stayed at $1,000, and the cheapest new phone from Apple, the (very good!) iPhone XR, starts at $750.

Long story short: It worked. iPhone revenue has grown significantly in 2018. Investors started watching not just how many phones Apple was selling, but how much those phones were selling for, or the average selling price. Compared to 2016, Apple was able to raise its average selling price by nearly $100. It’s now at $793, an annual increase of 23 percent — all during a time when the price of a generic smartphone is rapidly decreasing. So even while iPhone sales have remained mostly flat, the company is bringing in about 29 percent more in iPhone revenue. Nice work, if you can get it.

But there was an interesting wrinkle to Apple’s earnings call yesterday. Apple announced that starting with its next quarterly report, it was no longer going to report how many iPhones, Macs, or iPads it sells anymore, just how much revenue it earns.

Tim Cook offered an, uh, interesting metaphor to explain why Apple wasn’t going to say how many units it is selling any more:

This is a little bit like when you go to the market and you push your cart up to the cashier and she says or he says how many units do you have in there? It doesn’t matter a lot how many units there are in there in terms of the overall value of what’s in the cart.

Apple’s CFO Luca Maestri’s explanation made even less sense:

As we have stated many times, our objective is to make great products and services that enrich people’s lives, and to provide an unparalleled customer experience so that our users are highly satisfied, loyal, and engaged. As we accomplish these objectives, strong financial results follow. As demonstrated by our financial performance in recent years, the number of units sold in any 90-day period is not necessarily representative of the underlying strength of our business.

These explanations are, frankly, a bit disingenuous. For over a decade, Apple was happy to share how many units it was selling because, since the days of the iPod, those numbers were so good. But, barring some revolution in smartphones that nobody — including, it seems, Apple — thinks is likely is happen, the total number of new iPhones that Apple sells will continue to stay flat or even fall.

To be clear, Apple is under no obligation to say how many iPhones it sells every quarter. Many other large tech and consumer electronic companies (and many other publicly traded companies in general) are even more opaque in their accounting. But Apple is now deciding to hide a number it has proudly broadcast for years. Perhaps more worryingly for investors, it also means that the ability to gauge average selling price will go out the window.

And investors are worried. In aftermarket trading, Apple was down by nearly 7 percent at one point, briefly taking the company’s valuation below $1 trillion. Some of the skittishness seemed to be about slightly weaker projected holiday sales than Wall Street wanted to see. But if I were an investor in Apple, its decision to stop reporting unit sales would worry me much more than how many phones it thinks it will sell this holiday season. A slightly weaker holiday season is a short-term issue. The decision to go radio silent on how many iPhones it’s actually selling moving forward is a long-term one.