This year promise a major transformation in the strength of Apple Inc. and the services it offers. The American technology giant is recognized as the world’s leading provider of top-end, electronic gadgets. Sitting right at the top of that list is the company’s iPhone. The premium product has become a formidable seller in recent years. Today, just about every handset maker is forced to consider how their devices can rival the popularity of Apple’s flagship product.
But Apple has noticeably become all iPhones and little else. Analysts and investors have often called for greater products that can water down the company’s reliance on iPhone sales. This was a massive focal point last year when the iPhone maker ran into its first annual profit fall in 15 years. The result was heavily pegged on declining iPhone purchases. Much of Wall Street has reiterated its position on Apple’s need to beef up the appeal of its other products in order to secure high profitability. There are several promising gadgets in the company’s product arsenal, but none so as the undeniable rise of Apple’s services.
You could easily be forgiven for thinking that Apple’s services form a minor portion of the firm’s business. It pulled in more than $24 billion alone last year. That accounts for over 10 per cent of Apple Inc.’s consolidated revenue. For a better idea about how the business is spiking, 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, too.
Apple’s services revenues started off rather modest. This segment of the company began seeing real growth two years ago. It rose 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
Apple Services to the fore.
The chief exec, Tim Cook, 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.
Indeed it was powerful assertion to make, 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 in clearly booming. This is especially great for the company on the investment side of things.
This was backed by CNBC’s Jim Cramer last Monday, who claims that, despite Apple’s meaty stock value, the company and its collective ventures are still “undervalued”. That comment came not long after leading Wall Street watchers reiterated their stance on Apple Inc as well. Last Monday saw UBS advising investors to pile up on Apple shares. While they may seem hefty and slippery right now, the analyst firm is adamant that the true value of Apple’s shares is yet to be realized. UBS also claimed that people should keep an eye out for Apple Inc.’s budding services.
Analysts at Stiefel have claimed that Apple would have a difficult time gathering more investors if it doesn’t come up with ways to shed if dependence on iPhone sales. At the moment, the firm’s services looks like it fits that bill nicely.
Apple is done with hit products
Apple now looks like it is trying to lower the bar for its hardware. Reports claim the company is making adjustments to something which 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.
Supporting the idea that every new generation device will be a massive hit with mind-blowing features is an unsustainable effort. This transition may usher in a new approach to the design and release of its gadgets. The analyst believes Apple is set on becoming more of a services and recurring revenue business rather than a “new hit product business.”
“I think Apple has been trying to de-emphasize the hit-driven business,” the analyst says. Horace 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 which constantly pushes out hits products. That perception can lends itself to large and costly expectations as well, which can easily turn into large and costly disappointments.
Apple might be feeling the fatiguing effects of driving a hit-driven business. Being able to outdo itself year after year is proving to be more distracting than it is profitable. Although, that mostly applies to hardware. In terms of services, innovation can be much easier and a lot less costly. I looks as though Apple has great incentives to enhance it service units.