Apple's quarterly earnings announcement released this afternoon is a mix of shock and awe. For the latter, the company nailed the biggest quarter in its history with sales of nearly \$88.3 billion. Earnings per share, up 16 percent year over year to \$3.89, were also an all-time high. But there's a rumbling in the firmament. The number of iPhone units sold dropped by 1 percent.

The mammoth change has been the price of the iPhone X, clocking in at about \$1,000 as an entry level. As I've said before, Apple needed to increase the iPhone average sales price to ensure it keeps revenue growing. But there's a price because of consumer sensitivity.

This has not been a popular view. A number of people have told me that I didn't understand consumers, that everyone would flock to own the insanely expensive phone. But not everyone has. Even though a 1 percent drop in units sold is small, it's a turning point. This is the first time since at least 2012 that iPhone unit sales for the holiday season actually dropped in number. They've been close before, but always with some increase.

Not that Apple made a bad decision. The boost in average sales price for the iPhone, the company's big driver of revenue and profit, is enormous. The ASP over the last few years has hung around \$630 or so. Last quarter, it took a comic book superhero leap to \$797. That's astounding.

It also gives us a way to estimate the number of iPhone X units sold. Using a little algebra, with x representing the number if iPhone Xs and y the others, an assumption that the y units had the same ASP as last quarter, and another assumption that the average iPhone X cost \$1,100, we get two equations:

x + y = 77,316,000
(x*\$1100 + y*\$633)/77,316,000 = \$797

Do the calculations and you find that y is 50,164,343 and x is 27,151,657. So, roughly 50.2 million non-iPhone X units and 27.2 million iPhone X units.

It's an estimate, but not utterly wild and something that gives us figures to work with. Was it a smart move for Apple? From a purely financial view, I'd say yes for the following two reasons: they make more money and the purchase fall-off so far is low.

Yes, a lot of people are willing to spend significant sums for what they perceive as the latest and greatest phone in the Apple universe. But more consumers won't, and the high end price looks like it was off-putting. Remember, this was during the busiest sales time of the year when people often throw normal caution to the winds when spending money.

There is brand value when people are willing to follow you. When those who did are no longer willing to, it means your brand took a hit.

I don't know that another course of action made sense for Apple. As with most of the tech sector, they remain on the growth expectation treadmill. However, unlike typical luxury brands, Apple depends on heavy sales volume. The first indication of a price they will pay seems clear.

Published on: Feb 1, 2018
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