Massucci's Take: Apple making more while charging less

Recently I bought an Apple (AAPL) iMac, and after upgrading the hard drive and opting for a bigger display, I wound up spending more than I had planned. Listening to Apple's earnings call this week, I discovered that many of its customers have had similar experiences buying Apple products.

Apple CFO Peter Oppenheimer said that Apple recently finished its "most profitable quarter ever," selling more iPhones and Macs than in any previous quarter. Interestingly, while retail prices have been cut on many products, the average selling price for those products has risen. How is Apple doing it?
"Apple is one of the few companies that continues to see consumers buy up the food chain, as opposed to buy down," says Brian Marshall, technology analyst at Broadpoint AmTech in San Francisco. "It happened in every single one of their product categories. Despite the fact that they're bringing down prices for their computers, iPods and iPhones, their average selling price continues to go up."

The company sold 3.05 million Macs in the third quarter, up 17 percent over last year, and 7.4 million iPhones, up seven percent, Oppenheimer said on a company conference call this week. Apple sold just 10.2 million iPods, down from 11 million a year ago -- but half of those sales were first-time iPod buyers, he said.

Analysts say that customers may visit an Apple Store or Best Buy (BBY) intending to buy an iPod shuffle and walk out with a more expensive iPod Nano, or plan to buy a Nano and then spring for the pricier iPod Touch. Mac buyers may think they want a $999 MacBook but then decide to spend $200 more for the sleeker aluminum model. "When Apple cut prices on the 3G to $99, I thought that was going to be huge," Marshall says. "In fact, what we saw in the average selling price for the quarter is that many customers wound up buying the high-end $299 iPhone."

I liken it to car shopping. Shoppers often splurge for upgrades, such as a better stereo, after deciding on a particular make and model. The extras come after the initial sticker-shock and the eventual decision to buy.

As the U.S. recovers from this recession, Nomura economist Paul Sheard says, consumers will tend to withhold spending until they see more positive signals that the economy is recovering, or see other consumers spending more. Apple may be the only exception to this rule.

Marshall had forecast an average iPhone selling price of $530, less than Apple's report of more than $600; he has a buy rating on Apple's shares and a 12-month price target of $235.

The higher average selling price, Apple says, is due in part to a boost in iPhone 3G S sales. "Average selling prices were also up for the Mac portable [laptops] as more customers bought the MacBook Pros," which are more expensive, Apple's statement said. Both the iPhone 3G S and MacBook Pros are among the more expensive products in their categories. Sales of the iPod Touch, the most expensive iPod in the line, are up 100 percent versus the same quarter a year ago, CFO Oppenheimer said on this week's call.

So be careful when you walk into an Apple store. If you're like the rest of us, you may find that you're powerless to resist the charms of its more expensive products -- and that you spend more than you meant to.

Anthony Massucci is a senior writer and columnist for DailyFinance. You may follow him on Twitter at hianthony.
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