It's A Blowout! Apple Sold 74.5 Million iPhones Last Quarter

As expected, Apple announced record iPhone sales Tuesday.

Apple sold 74.5 million iPhones in the calendar fourth quarter of 2014. Wall Street was expecting 65 million, and some individual analysts predicted Apple would sell over 70 million iPhones.

This is nothing short of a blowout. For the year-ago quarter, Apple sold 51 million iPhones, which was a record at the time. But Apple shattered that record last quarter.

The average selling price (ASP) of the iPhone beat expectations too. It was $687 last quarter, versus $668 expected. The iPhone alone generated $51.2 billion in revenue for Apple.

So, why was the quarter such a success?

This was a "super cycle" for iPhone upgrades. For the first time, Apple launched two new iPhone models with bigger screens, finally catching up to the rest of the industry. Every iPhone competitor already offered phones with screens that were at least 4.5 inches. Apple was the only smartphone maker left that made phones with tiny screens.

Until the iPhone 6 and 6 Plus launched, the largest iPhone only had a 4-inch screen. Today, the iPhone 6 has a 4.7-inch screen and the iPhone 6 Plus has a 5.5-inch screen. A lot of people were holding on to their tiny iPhone 5s, 5Ses, and 4Ses in anticipation of the iPhone 6 and 6 Plus launch.

China was another key to the iPhone's monster quarter. Apple started selling the iPhone 6 and 6 Plus in China in October, about a month after the US launch. China is a huge area of growth for Apple because a lot of people there are still making the transition from regular phones to smartphones. According to research firm Canalys, the iPhone 6 helped Apple become the top smartphone vendor in China last quarter.

Even though the iPhone is more expensive than many popular Android devices in China, consumers there are still buying the iPhone in droves. That's because the iPhone offers a unique experience beyond what you can get from all the other Android phones.

On the other hand, Apple doubters think this is the last time we'll see a blowout quarter for iPhone sales. The bear theory for Apple's iPhone business is that everyone was waiting for a big-screen iPhone. Now that the big-screen iPhone is here, users won't want to upgrade as often.

Instead, the theory goes, iPhone users will suddenly change their mind and start buying cheaper Android phones. A lot of Android manufacturers like the Chinese startup Xiaomi have started making really nice phones that are just as powerful and beautiful as the iPhone but cost half as much.

The problem with that theory is the iPhone has proven to be very "sticky" with consumers. If you're an iPhone user, you're not as likely to switch to Android just because it's cheaper. The experience is so good that people are willing to pay a premium to be an iPhone owner. It's been nearly eight years since the iPhone launched, and no competitor has been able to bust a hole in that trend.