For Apple, Growth Exists Beyond IPhones

According to a recent Gartner report on global smartphones, for Q4 2018, Apple (Nasdaq: AAPLreported its worst quarterly decline in phone sales since Q1 2016. With demand for entry-level smartphones continuing to grow, vendors like Huawei are eating into both Apple’s and Samsung’s smartphone share. But Apple is turning the trend around by focusing on subscription-based services and the emerging trend of digital health. The efforts are being appreciated by the market as the stock climbed 5% post result announcement.

Apple’s Financials

Apple’s second quarter revenues fell 5% over the year to $58.02 billion, ahead of the market’s forecast of $57.54 billion. EPS for the quarter came in at $2.46, again ahead of the Street’s forecast of $2.36.

By segment, Apple’s iPhone revenues drove the declines with revenues falling 17% over the year to $31.1 billion, offset somewhat by 22% growth in iPad sales to $4.9 billion. iPad sales were driven by iPad Pro which was released late last year. Mac revenues continued to fall and reported a 5% decline to $5.5 billion. Apple’s big growth segments remain the Wearable Devices segment that grew 30% to $5.1 billion and the Services segment that grew 16% to $11.5 billion.

For the current quarter, Apple forecast revenues of $52.5-$54.5 billion, ahead of the market’s forecast of $52.1 billion.

Apple’s Subscription Services Business

With the smartphone market slowing down, Apple has been focusing on growth through other business segments. Services is now its second-biggest segment and is also an important contributor to its margins. For the quarter, the services segment boasted of 64% gross margin, compared with Apple’s overall gross margin of 38%. The growth is fueled by the fact that Apple now has nearly 1.4 billion connected devices deployed globally.

During the quarter, Apple claimed that it reported the best ever performance for the App Store, Apple Music cloud services, and the App Store search ad business. It set new March quarter revenue records for AppleCare and Apple Pay. Apple Pay transaction volume more than doubled over the year and is now on track to reach 10 billion transactions this calendar year. Apple Pay is available in 30 markets, and Apple expects to grow it to 40 markets by the end of the year.

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Evan Lee 9 months ago Member's comment

I don't know if I would agree that there is much Apple's growth that exists beyond iPhones. Their bad quarter was caused by their lack of iPhone sales, and even if their services did well, without iPhone sales, I just don't see how they can really take advantage of Apple Pay or Apple Music doing well. They would really need those wearable devices to take off with iPhone sales in decline.

Alpha Stockman 9 months ago Member's comment

There will always be the "next thing" before ipadsd and iphones, it was the Ipod. #Apple doesn't invent products, they reinvent them - take popular items and make them better, sexier, and more user friendly. That's where they shine! $AAPL