Move Over iPhone, Let Apple’s Other Children Play
Updated: Aug 12, 2019
With Apple’s flagship iPhone sales dropping 12% last quarter, has the tech giant turned a new corner in their quest to remain at the top?
This week, tech giant Apple (NASDAQ: AAPL) released its much anticipated Q3 results, which proved to be generally positive across the board. Despite the iPhone suffering an expected sales drop of 12%, services and wearables enjoyed growth, suggesting a shift in the company’s product dynamic.
Since the iPhone was announced to the world 12 years ago, it has become a household staple. As of November 2018, over 2 billion iPhones had been sold around the world, but the time of this dominance appears to be at an end.
Since that figures report in 2018, Apple has stopped reporting their iPhone sales numbers, which suggests that they are aware of a scaling-down of operations in this sector. This may prove to have substance, as Apple just reported that the iPhone generated less than half of its total quarterly revenue for the first time since 2012. Despite surprising success in China with sales up 10%, global sales fell 12% to $25.99 billion.
Following their quarterly report, CEO Tim Cook described the change as successfully diversifying away from a single product. “We actually grew in mainland China,” Cook told Reuters. “Non-iPhone revenue grew 17%. We grew in every category outside of iPhone.”
These other products are, of course, Apple’s wearables and services. Wearables, such as the Apple Watch and Airpods, saw a rise of nearly 50%, while services grew 12.6% to $11.46 billion, setting a new record for the tech giant and showing that brand does still have power with customers. The Apple Watch had an outstanding quarter with sales up 50%, while the company’s Airpod earphones have actually generated more revenue than the iPod did at its peak.
Despite these retail wins for Apple, it was their services that sparked curiosity about the company’s priorities going forward. These services include the App Store, Apple News +, Apple Music and iCloud, with more products coming later in the year such as the Apple credit card, as well as an exciting foray into the world of original content streaming in the fall.
A big player in Apple’s current service game is their Apple Music product, which surpassed bitter rivals Spotify (NYSE:SPOT) in number of paid users in the U.S earlier this year. Spotify, however, still have nearly twice the number of paid subscribers worldwide than Apple, with 108 million compared to 60 million. Apple’s $400 million acquisition of Shazam in September 2018 proved that they were taking their music streaming services to another level, and appear to still be on that path. Other services such as iCloud have seen year on year increases in subscribers, while Apple Pay is now available in 30 markets and expected to be live in 40 markets by the end of 2019.
Apple will continue to expand on the services they provide as their credit card begins rollout this week, in cooperation with the Goldman Sachs Group bank. Another service coming soon is Apple TV+. This original content streaming service arrives at a time when the market is full of well-established competitors such as Netflix (NASDAQ: NFLX), Hulu and Amazon Prime, and with Disney (NYSE: DIS) throwing their hat in the ring later this year with Disney Plus, there will be no shortage of options. However, Apple’s name alone can gain them a significant market share of subscribers as was seen with Apple News +, which had 200,000 sign ups within 48 hours of launch, and the same logic can apply to other upcoming services.
Apple now has 390 million paid subscriptions across all of its services, an increase of 30 million compared to last quarter, and the company expects to reach more than half a billion paid subscribers by 2020.
Despite these moves away from iOS devices, many of Apple’s services and wearables do still rely on the iPhone, so it will be interesting to see how the company adapts in the future if iPhone sales continue to decrease. They have had setbacks before, but this may be the biggest challenge they have faced in the post-Steve Jobs era. How they handle it may well dictate the path the company takes over the next decade. And who knows, it’s never too late for a comeback, and no product is bigger than the iPhone!
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Apple, Netflix & Disney. Read our full disclosure policy here.