Apple Inc. (NASDAQ:AAPL) is a renowned maker of premium hardware at its core. The company gets most of its income from the sales of iPhones, Macs and other top-end products. Even its minor gadgets pull in a considerable amount of money for the firm. These include items like the Apple Watch, the new AirPods and even the dwindling iPods. There is, however, an interesting growth trend in Apple’s service products. Moving into 2017, we stand to see the company intensify on fronts like Apple Music, Apple Pay, Digital Content and other services. It is clear that Apple could end this year ranked among the world’s greatest services giants.
Apple’s service revenues started off rather modest. This segment of the company began seeing real growth two years ago. It spiked a whole 10 per cent over the course of the 2015 financial year and then went on to climb another 22 per cent in 2016. Clearly the firm’s service offerings are finding more appeal. In fact, the last three months building up to Dec. 31 alone saw Apple’s services gain 18 per cent in revenue year-over-year.
You would be mistaken if you thought Apple’s services business was a minute thing, too. The 2016 fiscal year shows it raking in over $24 billion. That accounts for more than 10 per cent of Apple Inc.’s consolidated revenue. To give out a clear idea of how great the business is growing, services came up as the tech giant’s second greatest income source last year. It beat items like the iPad, the Macs and other individual Apple products.
Let’s look at services from CEO Tim Cook’s vantage point. The chief exec says “Services are becoming a larger part of our business. [We] expect the revenues to be the size of a Fortune 500 company this year.” This was said at Apple Inc.’s most recent earnings announcement.
It was mighty endorsement indeed, and perhaps not too far-fetched. Although one should keep in mind that what Apple plans and what it actually accomplishes are two completely different things. That being said, the momentum behind Apple’s service businesses is clearly booming. This is especially great for the company on the investment side of things.
Apple can break away from iPhones with services
Last year, the iDevice maker’s dependence on iPhone sales came to the fore. The drop in iPhone sales resulted in its first annual profit decline in 15 years. Analysts like those at Stiefel claimed the Cupertino giant would find a hard time winning investors over if it doesn’t come up with a ways to shed its reliance on iPhone sales. It looks as though services could save theyou day.
Apple is now trying to lower the bar for itself. Reports claim it is essentially making changes to something that forms a big part of its corporate culture and brand. This is the ability to continuously push out hit upgrades that greatly outdo their older generations, all the time. This change is reported by Horace Dediu, a trusted Apple reporter and follower of its developments.
There stands to be a shift in the management at Apple Inc., Dediu claims. Supporting the idea that every new generation device will be a massive hit with mind-blowing features is an unsustainable effort. The transition may usher in a new approach to the design and release of its gadgets. Dediu believes Apple is set on becoming more of a services and recurring revenue business rather than a “new hit product business.”
Apple plays down hit products
“I think Apple has been trying to de-emphasize the hit-driven business,” the analyst said. Dediu says this does not mean the firm will stop producing gadgets though. Instead, Apple simply doesn’t want to be seen as a tech firm that constantly pushes out hits products. That perception can lend itself to large and costly expectations which can easily turn into large and costly disappointments.
“One of the big audiences that [CEO Tim Cook] has is actually internal employee morale,” Dediu explains. “I think the hit-driven mindset is demoralizing internally, and there is a concerted effort to tone down this ‘Let’s hit home runs’ mind-set.”
If Dediu’s comments are true, there stands to be a massive change in the U.S. company’s business culture. Apple basically cemented the product unveiling strategy used by most major tech corporations today. This is the familiar event-based showcasing where companies come out before a live audience in order to reveal something spectacular. For Apple, this strategy is aided by how remains dead-quiet about any product until just a few days before it is unveiled.
The firm’s combination of secrecy and surprise has been its key driver of sales for years, with the main focus landing on once-off gadget sales. Analysts point out that Apple is in dire need of making changes that offset its reliance on dwindling hardware. Can Apple Services be the firm’s salvation?
What are your thoughts on Apple’s booming service businesses? Could they transform the firm into something greater than ever, or is it merely a transition from one stronghold to another? We would love to hear from you, so feel free to leave a comment below. You can also keep the conversation going by sharing this page on social platforms.