Still a one-product company.
- Apple reported good results as iPhone growth declines slowed and services continued to chug along nicely.
- However, I still think that ending its dependence on the iPhone is a very distant dream meaning Apple will continue to live and die with the success of this product.
- FQ3 19 revenues / EPS were $53.81bn / $2.18 beating consensus of $53.42bn / $2.10.
- iPhone revenues declined by 12% YoY better than the 17% YoY decline seen last quarter as the Chinese market saw some stabilisation and Apple users did not desert Apple products as feared.
- Wearables also had a good quarter with 50% YoY growth and services also fared well reaching $11.5bn in revenues.
- Apple is clearly nervous with regard to the long-term outlook for the iPhone as it was at pains to point out how big and how strong the other businesses are when the iPhone is excluded.
- I think this is rather disingenuous as these businesses only exist because there is a base of iPhone users out there who live their lives on the device.
- For example, almost all Apple Watches sold require an iPhone to be present to function and almost all Airpod usage occurs with an iPhone.
- In a similar manner, the vast majority of services revenue is iPhone dependent.
- A big piece of Services is AppleCare which is almost all extended warranties for iPhones, the Apple App Store where a large majority of transactions occur on an iPhone and Apple Music which is also almost all on iPhone.
- Consequently, if the Apple iPhone suddenly loses its mojo then these businesses which are being dressed up as iPhone independent are also likely to crater.
- That being said, Apple is making the right moves based on the reality it faces as the smartphone market is both saturated and mature and earning new and stable revenue streams from these users is obviously a good idea.
- However, I do not believe that these revenues are isolated from iPhone risk meaning that, Apple to all intensive purposes, is still a one-product company.
- That one product continues to fare well and FQ4 guidance reflects this with FQ4 19 revenues expected to be $61bn – $64bn which is nicely ahead of consensus at $61bn.
- Apple’s position as the premier ecosystem globally is not under any threat mostly as a result of Google’s inability or unwillingness to bring the quality of Android into line with iOS.
- While this persists and no new product category emerges, Apple remains in good shape to continue generating cash like there is no tomorrow.
- I see this as fairly reflected in the share price and so I am still pretty ambivalent to the shares.
Blog Comments
Thomas Menguy
July 31, 2019 at 11:35 am
Very true, even if the Apple services (and wearables) are the best way to ensure the commitment of an iPhone buyer to the Apple ecosystem: A virtuous cycle. next step, a real strategy around hardware as a service.
Colin
August 1, 2019 at 12:37 am
Apple’s next big thing is already in plain sight and motivating its customers.
It’s an integrated information experience for most of life’s activities that runs ever more seamlessly and simply for the user across phones, computers, tablets, TV, loudspeakers, earphones, watches and the internet. It’s secure and private. It incorporates leading edge technologies running in the user’s device, like artificial intelligence and augmented reality. It looks as if cars will be added to the mix.
The iphone will evolve hugely as 5G networks mature. It’s a convenient and practical size for most uses, so I think it will continue to be the most widely used device for a long time.
There’s no comparable competitor in sight at the moment. As Apple owns and steadily advances more of the foundation technologies involved, catching up across the whole spectrum looks like a daunting challenge for a competitor.
I think this is the foundation of Apple’s success, much more than Google’s failure to compete on the quality of Android. It’s a fundamental difference of business models.