Why Apple looks good at midlife: diversification

Elder of the tech industry is growing its digital services such as the App Store, iCloud

SAN FRANCISCO— At 41years old, Apple is a respected elder of the tech industry. But rather than easing slowly into retirement, the company is going through another growth spurt. On Wednesday, Apple’s stock surged 5 per cent to a record high of $157.14 after it reported surprisingly strong financial results. It is now worth $822 billion (U.S.), more than any other company in the stock market. And that is before it releases a hotly anticipated new lineup of iPhones this fall, on the10th anniversary of the original model. Analysts say new phones could drive sales up by more than 10 per cent next year.

Apple is not alone. Other aging tech giants such as Microsoft, Amazon and Alphabet, the parent of Google, and younger players such as Facebook have also managed to post strong growth despite their tremendous size. The secret to their vigour, according to analysts and investors, is the vast amount of data they have about customers and their ability to sell products to those customers.

“This handful of companies is writing the operating system for the new economy,” said Brad Slingerlend, lead portfolio manager of Janus Henderson’s global technology fund. “The bigger companies are both able to collect data and use that data to build into adjacent businesses.”

For Apple, which is far more dependent on hardware sales than other tech leaders, the recent performance is all the more impressive after its dismal 2016, when quarterly revenue fell for the first time in 13 years and the company’s sales in China dropped through the floor. In the most recent quarter, ended July 1, Apple sold 2 per cent more iPhones than it did during the same period last year. In a harbinger of the company’s future, digital services — the App Store, iCloud, movie and music downloads, and the Apple Music streaming service — have become the second most important category for the company, growing 22 per cent to $7.3 billion in the quarter. With millions of new customers joining the iPhone ecosystem each year, Apple is in a position to increase its income from services much faster than from accessories.