Apple's Intangible Brand Is Generating Tangible Benefits: Gaining Market Share While Commanding Higher Prices

It's not supposed to work this way. Traditionally, companies and their products pursue one of two strategies: emphasizing profits through higher prices but lower volume, or 'making it up on volume' by selling many more cheaper products or services but at lower prices.

That Apple is able to charge higher prices and sell more volume while gaining market share on its rivals suggests that the age of intangibles has truly arrived.

By intangibles we mean the factors that drive corporate performance but are not captured on standard financial statements. These value creators include reputation, customer satisfaction, employee commitment to the enterprise - and brand.

Apple has a reputation for innovation and quality. Customer satisfaction is high, in large measure because of the reputational benefits ownership of the brand conveys (you've got style and can afford the best), just as is the commitment of its employees (you work for a great company that also happens to pay pretty well).

Apple may now possess, by some estimates, the most valuable brand in business history to date. So, the brand's intangible benefits are generating tangible financial rewards to management and shareholders. JL

Daisuke Wakabayashi reports in the Wall Street Journal:

The average selling price of an iPhone during the latest quarter was $659, up more than $60 compared with a year earlier.
Apple Inc. AAPL -1.47 % is pulling off a feat rarely seen in any industry, much less the cutthroat world of consumer electronics: gaining market share while also commanding higher prices.
Led by the larger-display iPhones it introduced last fall, Apple on Monday said it sold 61.2 million iPhones in the three months ended March 28, up 40% from the year-earlier period. Many of those sales came in emerging markets, including a 72% gain in the number of phones sold in China.
The average selling price of an iPhone during the latest quarter was $659, up more than $60 compared with a year earlier.
The company said its newest phones are luring more customers away from rivals. “We’re seeing a higher rate of switchers than previous iPhone cycles,” Apple Chief Executive Tim Cook said in an interview with The Wall Street Journal.

In the six months since Apple introduced the new iPhones, the company’s revenue increased by more than $29 billion, compared with the year-ago period. That is roughly equal to Nike Inc. NKE 0.31 % ’s annual revenue in 2014.
Apple said Monday its gross margin, a closely watched measure of profitability reflecting the percentage of revenue that remains after manufacturing costs, was 40.8%, above its estimated range of 38.5% to 39.5%.

Apple boosted its dividend 11% Monday and its share-repurchase program by $50 billion, to $140 billion. In all, Apple pledged to return $200 billion to shareholders through buybacks and dividends by March 2017. It had previously promised to return $130 billion by the end of 2015.
Buoyed by the strong earnings, Apple’s cash pile continues to grow, despite the company’s aggressive efforts to repurchase shares and pay dividends. At the end of March, Apple’s cash totaled $193.5 billion, up from $178 billion at the end of December. That is greater than the market capitalization of all but 15 other companies in the S&P 500.
Since it began its capital-return program in 2012, Apple said it has returned $112 billion to shareholders. Over the same period, its cash hoard grew by $76 billion. The latest update means Apple plans to return an additional $88 billion in cash to shareholders over the next two years.
Apple’s revenue growth is coming in large part from China. The greater China market—defined by Apple as China plus Hong Kong and Taiwan—passed Europe to become the company’s second-biggest region. Revenue grew 71% during the quarter, a peak shopping period for the country because of the Lunar New Year.“There are more people moving to the middle class in China than I’ve ever seen before or could ever imagine,” said Mr. Cook. “The size of the market and the love of the smartphone, in particular the iPhone, is incredible.”
Apple’s revenue gains abroad come despite the impact of a stronger dollar, which means sales in other currencies translate to fewer dollars.
Apple said the foreign-exchange impact reduced its revenue growth by six percentage points. In the current quarter, Apple expects the currency impact to grow to eight percentage points.
Another worrying sign is the continued slump of the iPad in the face of larger-screen smartphones and ever-lighter laptop computers. Apple said iPad unit sales fell 23% in the second quarter.
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Chief Financial Officer Luca Maestri said demand was muted in markets other than Japan and China.
On the other hand, Apple’s Mac line of personal computers is gaining market share against competitors. Mac unit sales rose 10% in the March quarter from a year earlier, compared with a 7% decline for the overall PC market, according to International Data Corp.
Apple’s latest hardware product, the Apple Watch, started shipping Friday. So far, availability is limited for the new device with Apple’s website estimating that new orders won’t be delivered until June.
Nonetheless, the Apple Watch isn’t expected to deliver a major earnings impact for the company in the near future. Mr. Maestri said the Watch would carry lower profit margins than the rest of Apple.
Mr. Cook said he “feels really good” about the orders for the Watch, noting that demand is still running ahead of supply.
Strong iPhone demand underpinned a 33% increase in profit for Apple’s fiscal second quarter. Net income totaled $13.57 billion, versus $10.22 billion in the year-ago period.
Earnings per share rose more sharply, to $2.33, from a split-adjusted $1.66, because the company’s stock-repurchase program reduced the share count.
Revenue rose 27% to $58.01 billion from $45.65 billion in the year-ago period.
The results surpassed analysts’ expectations. Analysts polled by Thomson Reuters estimated that Apple would post earnings of $2.16 a share on revenue of $56.1 billion.
For the current quarter, Apple again said it expects a gross margin of 38.5% to 39.5%. It projected revenue of $46 billion to $48 billion, in line with analysts’ estimates for that period.