Brief:

• Apple last month boosted smartphone revenue by 7% from a year earlier with the release of its most expensive handsets, the iPhone XS (base price $999), XS Max ($1,149) and sell-through of remaining inventory of the X (priced lowered to $899), which Apple discontinued. A big reason for the sales jump is that Apple released its highest-priced phones a few weeks earlier than in 2017, per a study by Oath's Flurry Analytics shared in a blog post.
• The XS and XS Max captured 45% more market share than last year’s iPhone 8 and 8 Plus models that were released during comparable weeks, the study reported. The XS and XS Max had a market share of 1.1% at the end of their first week of sales, compared with 0.76% for the 8 and 8 Plus.
• The iPhone 7, which is the last model with a metallic body, is the No. 1 iPhone model with a market share of 15.4%, followed by the iPhone 7 Plus (12.7%) and iPhone 6S (12.4%). Flurry's study is based on device activations of the XS and XS Max during their first week of sales.

Insight:

Apple's earlier release of its highest-end phones appears to have helped lift sales from a year earlier, when the tech giant had to temporarily hold the iPhone X because of reported production delays. Apple last year faced a bottleneck when a component for its FaceID facial recognition scanner took longer to assemble, The Wall Street Journal reported. The delay meant that the iPhone X didn't hit stores until November, hurting its shares in key markets like the United States and parts of Europe, per researcher Kantar.

This time around, Apple is releasing its budget iPhone a month after shipping its most expensive ones, which likely prevented some cannibalization of sales. The lower-priced iPhone XR (base price $749) won't be available for pre-order until October 16 and will ship a week later. The October release gives Apple enough time to get the model into more stores worldwide for the holiday buying season. Flurry Analytics forecasts that the iPhone's early sales bump will continue through the holidays. It helps that the iPhone has fiercely loyal customers in the United States, where a record 96% of iPhone owners who changed devices last year bought another model from Apple, according to Kantar.

As the smartphone market matures, Apple faces growing competition from other device makers and itself. The Flurry Analytics data showed that the XS and XS Max are being released into a market with backlogs of 15 other Apple devices, counting the iPhone 4 or later. Some consumers are holding onto their older phones instead of upgrading, which pressures the company to dramatically improve its latest phone models.

Hardware improvements to processors, cameras, screens and facial scanners are harder to deliver, which is a major reason that Apple has put greater emphasis on services that have become the biggest source of revenue growth. Apple's services category includes iTunes, the App Store, Apple Music, iCloud storage, Apple Pay and the AppleCare warranty program. Services revenue jumped 31% to $9.6 billion in fiscal Q3 2018 from a year earlier, compared with 17% sales growth overall. In addition, reports suggest that Apple is developing a streaming TV platform with original programming and a magazine subscription service, per MacRumors.