Apple services are growing, hardware slowing

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Apple posted quarterly results, and received a standing ovation: the stock rose 7% at the opening this morning.

What’s intriguing is that the numbers show lower sales of iPhone (down 15% compared to last year), Mac (down 10.5%), and iPad (down 8.3%). But Apple has pulled off some hand jive, and drawn attention to what may be the future of its growth engine: services.

In the release, Luca Maestri — Apple’s CFO — wrote ‘our Services business grew 19 percent year-over-year and App Store revenue was the highest ever, as our installed base continued to grow and transacting customers hit an all-time record’.

As I mentioned earlier this week (see What’s going on in Phoneland?), the market had already priced in the negatives coming in Apple’s quarterly results. As others — like Chris O’Brien — have pointed out, Apple has done a great job managing the expectations of Wall Street, and drawing the analysts’ attention to the figures Apple wants us to pay attention to. And the trend in services, and the growing margins in iPad sales, are the figures that are causing the stock to soar.

Tim Cook stated that the services side at Apple is on track to be ‘the size of a Fortune 100 company next year’.

So, once again the maturation theme is front and center: Apple’s sales of new hardware is dropping, but with a huge installed base, what can Apple do to make money? Sell — or more aptly, rent — services to all those folks with iPhone, iPads, and Macs. (Oh, and Watches, but that’s too tiny to matter, and might never.) So if Apple can continue to grow services to the installed base — plus get some additional boost in iPhone sales in the fall when new models come out — the company will remain a Wall Street darling.

Relative to enterprise sales, the better margins in iPads has got to be a proxy for increased sales in the enterprise based on the new larger iPad Pro. But, at present, Apple doesn’t have much of a story for enterprise services. Maybe it’s time to the company to revisit the plan to buy Dropbox or Box, and replace/rework iCloud (iCloud Pro?) with a cloud file sync-and-share solution –including a deep integration with Apple’s productivity suite — that makes more sense for the enterprise?

 

3 Comments

Dev

I was wondering when Apple would hit their market’s saturation point in terms of hardware – didn’t really expect them to sustain growth through other channels such as the services mention in their report.

Focus and Leap

Apple has been getting a tough competition from Xiaomi, especially in countries like China and India, Xiaomi users have drastically increased as those wanted to get an apple product are getting satisfied with Mi products, decreasing Apple sales in these regions.

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