The Daily Telegraph Thursday 1 August 2019 *** 31Apple weighs
next move as
‘other business’
usurps iPhone
F
or the first time in almost a
decade, iPhone sales have
generated less than half of
Apple’s revenue. The golden
age of the iPhone, it seems,
is over – and Apple’s
attempts to reinvent itself are
beginning to pay off.
The company’s stronger-than-
expected results in the just-ended
quarter revealed that growth from
services helped offset weak
iPhone sales.
“You really don’t hear people talk
about their phones like they did
several years ago,” said Hal Eddins at
Capital Investment Counsel. “The
key is that when people want to
splurge on a phone, they do it with an
Apple product.”
Consumers, who have more than a
decade of smartphone experience
behind them, know what they want in
a phone, and cannot be sold on novelty
nor design anymore. The trend for
trading in one expensive phone for
another has passed, partly because the
lure of a different device has dwindled
and partly because the days of truly
innovative iterations might be over.
Informed consumers now look for
the elements they care about: battery
life, screen and camera quality and
value for money. These innovations
are costly, and in themselves will
result in lower sales: longer-lasting
phones mean a longer sales cycle and
an escape from the annual upgrade
treadmill of yesteryear.
Initially, Apple’s plan to counteract
this slowdown was to offer a more
expensive model. That way, it couldclosed. “We stuck with that when
others didn’t and put in a lot of energy
and research and development, and
are in a good position to play out what
is next there.”
“With iPhone sales dipping, Apple is
trying to get more money from
existing iPhone owners by promoting
new services,” says Yoram Wurmser,
principal analyst at eMarketer. “That’s
working, but the promising number
may be the wearables figure, likely
representing strong growth in sales of
Apple Watch and AirPods.”
While Cook, who spluttered his way
through the earnings call on Tuesday
night after apologising for his
allergies, will be breathing a sigh of
relief this week, Wall Street is already
looking to the fourth quarter.
Apple said it forecasts higher-than-
expected revenue of as much as $64bn
with the launch of three new iPhones.
However, analysts seem sceptical on
whether consumers will buy into
Apple’s plans for three iPhones – the
stellar feature potentially being a
triple rear camera – especially at
£1,000 a pop.software, largely consisting of fees
from the App Store. Millions of people
purchase apps, games and virtual
items there, spending an estimated
$47bn in 2018. Most of this goes to the
developers creating the apps, but
Apple takes a 30pc cut of the
subscription or sale price.
This new area for revenue growth
has gone down well with shareholders,
but has dented Apple’s rosy reputation
and has put it under regulatory
scrutiny, which may hamper profits in
the future if it receives antitrust
penalties like its rival Google.
When the App Store was first
introduced in 2008 by Jobs, he
claimed it was a means to cover fees
like transaction costs and hosting fees.
Now, Apple is wading into risky
regulatory waters and irritating the
community that has helped its iPhones
do so well: the software engineers that
make the addictive apps that have
consumers gaming, buying and
“liking” on their devices.
Some developers are suing Apple for
creating what they claim is an illegal
monopoly through the app store byThe tech giant’s App
Store and wearables
have lifted revenues,
putting its core
product in the shade,
writes Margi Murphy
in San Francisco
sell fewer but make as much money.
But this year has proven that Apple is
more than a phone maker. Indeed,
Steve Jobs’s beloved company existed
long before the iPhone was introduced
in 2007 and, if the appetite of investors
is anything to go by, it will do so for
long after.
In fact, despite the negative
headlines, Apple actually had a record
June quarter for overall sales. Those
three months are traditionally the
slowest as it is the calm before the new
iPhone release storm. Instead, Apple
said sales in its third quarter increased
1pc to $53.8bn (£44bn) compared to
the same period last year.
The company may have beaten Wall
Street forecasts, but those were
gloomy to begin with. Apple’s profits
dipped from $11.5bn to $10bn
compared to the same time last year.
This was partly down to spending an
extra $1bn on research and
development – although the company
did not offer any further details.
So what does Apple have to offer?
Tim Cook, the Apple chief, revealed
that its software services, wearables
and iPad and Mac were responsible for
the record third-quarter revenue,
picking up the slack from the
iPhone slump.
“These results are promising across
all our geographic segments, and
we’re confident about what’s ahead,”
he said. “The balance of calendar 2019
will be an exciting period, with major
launches on all of our platforms, new
services and several new products.”
Cook has steered the company
during a particularly tumultuous time,
with looming regulation, changes in
the personal device market and
tensions over US and China trade
tariffs that could hit production. He
has shifted the company from
hardware towards software and
services, sales of which doubled in the
last three months.
The iPhone brings in the most sales
at $25.8bn, followed by services at
$11bn, with wearables, home and
accessories (such as its HomePod
and AirPod earphones) coming in
third at $5.5bn.
“Services” is the label Apple uses forTechnology Intelligence
charging the “inflated” 30pc fee and
forcing them to stick to rules around
selling apps at a price ending in .99.
The European Union is investigating
whether its fees and rules are fair
following a complaint from streaming
service Spotify.
But Cook has brushed off any
accusations of anti-competitive
practices, telling CBS in June that he
did not believe anyone “reasonable”
would consider the company a
monopoly because they did not have
“a dominant position in any market”.
Whether regulators agree remains to
be seen.
Software aside, Apple is a gadget
company at its core and is unlikely to
deviate too far from this mission. “The
way I see it,” Cook said, “we have the
strongest hardware portfolio ever and
we have new products on the way”.
In fact, one of its more questionable
bets, the Apple Watch, has been a slow
burner that Cook said is now paying
off. “We have the wearables area that
is doing extremely well,” he said
during a presentation of the company’s
financial results after the market‘The way I
see it, wehave the
strongesthardware
portfolio ever
and we havenew
products on
the way’The balance at
Apple has shifted
from the once
dominant iPhone to
diversified products
such as software
services and
wearablesTe
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