iPhone Sales Decline but Apple's Services Revenue Up from Last Year
As Apple prepares for its next major product launch this fall, the company continues to draw an increasing share of its revenues from services, rather than from sales of devices like the iPhone and iPad.
Apple's earnings from services like iTunes, the App Store, Music, iCloud and Apple Care grew by 19 percent over the same quarter last year, while iPhone revenues declined by 23 percent during the same period, according to the company's third-quarter financial results released yesterday. Revenues from the App Store were "the highest ever," according to Apple CFO Luca Maestri.
iPad sales were another bright spot in the company's latest figures, with revenues up by 7 percent even as the number of units sold dropped by 9 percent. Apple is just one of the many device manufacturers that has seen a steady decline in tablet sales in recent years.
Apple's earnings report arrived just a couple months ahead of the company's expected fall product release, which is set to include the public launch of iOS 10, other operating systems and the iPhone 7.
'Incredible Lineup' in Product Pipeline
During yesterday's conference call about the earnings report, CEO Tim Cook (pictured above) said the latest figures show "stronger customer demand and business performance than we anticipated just 90 days ago."
Cook said that iPhone sales numbers reflected the company's efforts to reduce inventory levels ahead of its next product launch in September. He also noted that sales of the iPhone SE, which hit the market in late March, were strong, with demand exceeding supply, and that growth in services earnings were broad-based.
"In the last 12 months, our services revenue is up almost $4 billion year on year to $23.1 billion, and we expect it to be the size of a Fortune 100 company next year," Cook said.
He added that the coming fall releases will include an even smarter Siri digital assistant and operating system updates that will make continuity of services across Apple devices even more powerful. "We have an incredible lineup of products in our pipeline, and I'm very bullish about our long-term opportunity," Cook said.
Test for Apple Lies with Software
At this point in the development of he consumer tech market, especially in terms of mobile devices, the greatest opportunities to wow buyers with innovation are more likely to lie on the software side rather than on the hardware end, IDC analyst Ramon Llamas told us today.
"The hardware reins us in, but the software keeps us there," said Llamas, IDC's research manager for wearables and mobile phones. In June, Cook said that the fall arrival of iOS 10 will be "the mother of all releases," but Llamas said the true test for Apple will be how well it executes its next software updates.
Whether the iPhone 7 eliminates the headphone jack as rumored, for example, is really a minor issue, Llamas said. And Apple's promises of an improved Siri could just mean that the digital assistant simply becomes a slightly smarter "digital Fido" rather than a truly responsive and predictive artificial intelligence capable of handing complex tasks for users, he added. "I don't think Siri is going to be the be-all, end-all just yet," Llamas said.
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