Hardware Products Face Revenue Decline

Apple’s third-quarter earnings report revealed a decline in revenue for its most iconic hardware products, including the iPhone, iPad, and Mac. This trend may continue in the current period.

However, the company’s services division is experiencing accelerating growth, becoming Apple’s most profitable business. This division includes subscriptions, warranties, licensing fees, and Apple Pay. In the June quarter, services sales grew by over 8% to $21.2 billion, surpassing the 5.5% growth from the previous period. Apple expects even faster growth in the fiscal fourth quarter.

Apple CEO Tim Cook expressed that the division’s growth was better than expected.

The Importance of Apple’s Services Business

Apple’s services business is critical for shareholders due to its stronger margins compared to hardware products, the predictability of recurring billing, and the multiple ways it generates revenue from the vast customer base of over 2 billion devices. Services had a gross margin of 70.5% in the June quarter, almost double that of Apple’s hardware products.

CFO Luca Maestri highlighted that the growth of the services division is driven by the expanding install base and increased engagement of customers within the ecosystem.

Challenges in Hardware Sales

While sales of iPads and Macs are expected to decline by double-digit percentages annually, Apple anticipates that iPhone sales will perform better than the 2% decline observed in the latest quarter.

Future Outlook for Apple’s Services Business

Although Apple’s services business may not achieve growth records like the 38% increase during the pandemic, analysts predict that it will generate almost $60 billion in total sales by fiscal 2023. Apple aims to attract more paid customers by offering better and more extensive content.

What’s Included in Apple’s Services

Apple’s services business encompasses various products, although the company doesn’t provide specific breakdowns. However, officials shared several data points that demonstrate their optimism:

• Advertising: This includes Apple’s own platforms for serving ads on Apple News and the App Store, as well as licensing arrangements such as the deal with Google to be the default iPhone search engine.
• AppleCare: Apple’s extended warranty program.
• Cloud services: iCloud storage.
• Digital content: Apple Music, video subscriptions like Apple TV+, and Apple’s share of sales on the App Store.
• Payment services: Fees collected from Apple Card and Apple Pay usage.

Apple set an all-time revenue record for total services and various categories, including video, AppleCare, cloud, and payment services, according to CEO Tim Cook.

The Growth of Apple’s Services Business

Apple disclosed that it now has over 1 billion paid subscribers, a figure that has doubled in three years and increased by 150 million in the last year. This includes subscriptions to Apple’s services and apps on the App Store, where the company receives a percentage of each purchase.

Apple’s Deal with Major League Soccer

Apple mentioned its successful deal with Major League Soccer to broadcast games on Apple TV, which exceeded internal subscriber expectations, partially due to the presence of star player Lionel Messi.

Post-Earnings Report Performance

Following the report, Apple’s shares experienced a slight decline of just over 2% to $187.15 in extended trading.

Hardware Products Face Revenue Decline

Apple’s third-quarter earnings report revealed a decline in revenue for its most iconic hardware products, including the iPhone, iPad, and Mac. This trend may continue in the current period.

However, the company’s services division is experiencing accelerating growth, becoming Apple’s most profitable business. This division includes subscriptions, warranties, licensing fees, and Apple Pay. In the June quarter, services sales grew by over 8% to $21.2 billion, surpassing the 5.5% growth from the previous period. Apple expects even faster growth in the fiscal fourth quarter.

Apple CEO Tim Cook expressed that the division’s growth was better than expected.

The Importance of Apple’s Services Business

Apple’s services business is critical for shareholders due to its stronger margins compared to hardware products, the predictability of recurring billing, and the multiple ways it generates revenue from the vast customer base of over 2 billion devices. Services had a gross margin of 70.5% in the June quarter, almost double that of Apple’s hardware products.

CFO Luca Maestri highlighted that the growth of the services division is driven by the expanding install base and increased engagement of customers within the ecosystem.

Challenges in Hardware Sales

While sales of iPads and Macs are expected to decline by double-digit percentages annually, Apple anticipates that iPhone sales will perform better than the 2% decline observed in the latest quarter.

Future Outlook for Apple’s Services Business

Although Apple’s services business may not achieve growth records like the 38% increase during the pandemic, analysts predict that it will generate almost $60 billion in total sales by fiscal 2023. Apple aims to attract more paid customers by offering better and more extensive content.

What’s Included in Apple’s Services

Apple’s services business encompasses various products, although the company doesn’t provide specific breakdowns. However, officials shared several data points that demonstrate their optimism:

• Advertising: This includes Apple’s own platforms for serving ads on Apple News and the App Store, as well as licensing arrangements such as the deal with Google to be the default iPhone search engine.
• AppleCare: Apple’s extended warranty program.
• Cloud services: iCloud storage.
• Digital content: Apple Music, video subscriptions like Apple TV+, and Apple’s share of sales on the App Store.
• Payment services: Fees collected from Apple Card and Apple Pay usage.

Apple set an all-time revenue record for total services and various categories, including video, AppleCare, cloud, and payment services, according to CEO Tim Cook.

The Growth of Apple’s Services Business

Apple disclosed that it now has over 1 billion paid subscribers, a figure that has doubled in three years and increased by 150 million in the last year. This includes subscriptions to Apple’s services and apps on the App Store, where the company receives a percentage of each purchase.

Apple’s Deal with Major League Soccer

Apple mentioned its successful deal with Major League Soccer to broadcast games on Apple TV, which exceeded internal subscriber expectations, partially due to the presence of star player Lionel Messi.

Post-Earnings Report Performance

Following the report, Apple’s shares experienced a slight decline of just over 2% to $187.15 in extended trading.