Apple's Profits Rise as Consumers Choose More Expensive iPhone Storage Options
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With iPhone sales stabilizing, Apple's expanded storage upgrade capabilities have become an important source of profit.
Apple has long used a strategy to encourage iPhone users to choose options with more storage, which significantly increases the price of the device. This approach has proven crucial in offsetting stagnant iPhone sales revenue.
Upgraded storage options are more expensive, ranging from 10% to 50% of the price of the base model. The value they offer can be significant, depending on the owner's use case.
RAM and flash memory are commodities, and Apple has historically done well by buying shares at good prices. Thus, the actual cost of these storage components is relatively small compared to the significant revenue they generate.
As a result, storage modernization is a key aspect of a company's profitability strategy, according to a new study from Consumer Intelligence Research Partners (CIRP).
The share of customers choosing to increase their storage capacity suggests that — 44% of iPhone buyers prefer to upgrade the storage capacity instead of using the base model. This trend can be attributed to the growing demand for more storage capacity due to the growing size of applications and media files, as well as the desire to future-proof their devices.
The update could increase storage to up to 1 TB for high-end iPhone 15 Pro and Pro Max models.
Customers purchasing new premium models, such as iPhone 15 models introduced in September 2023, are more likely to choose additional storage. More than half of buyers of these latest models are upgrading their memory, compared to less than 40% for year-old iPhone 14 models and even lower for iPhone 13 and 12 models.
Upgrading iPhone memory on year ending March 2024
While many companies focus primarily on revenue, Apple's strategy emphasizes the importance of gross margins, which typically have high gross margins.
Apple continues to expand its services business to include these high-margin sales. The additional cost of upgrading storage is significantly less than the price premium charged, resulting in higher gross margins for Apple.
The shift towards models with higher storage capacity is a consumer-oriented market shift. Apple's ability to address consumers' desires to ensure their devices are future-ready is being strengthened by the increasing size of apps and media files, as well as the increasing functionality of smartphones.
Despite broader industry challenges, Apple's targeted improvements to its products continue to resonate with users. However, the strategy of encouraging storage upgrades may face challenges in the future, such as the ability for consumers to become more conscious of their spending.
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