Has Apple bitten more than it can chew?
In 2010, before he became chief executive officer, Apple’s Tim Cook said all the company’s gadgets could fit on a table.
In 2010, before he became chief executive officer, Apple’s Tim Cook said all the company’s gadgets could fit on a table, arguing such focus resulted in better products. At the time, the company’s website offered 14 Apple products. Now, under Cook’s leadership, the lineup has ballooned to 27 products available in more than 200 different versions. The strategy — a departure from co-founder Steve Jobs’ minimalist approach — is helping Apple grow even as the market for its most-important product, smartphones, stalls.
Products such as the Apple Watch and AirPod wireless headphones, combined with more versions of the iPhone and surging sales from a growing variety of software services, drove revenue growth in the most-recent quarter. That offset weaker-than-expected phone unit sales and helped Apple’s market value top $800 billion this week — a first for a US company.
While Cook’s Apple has so far struggled to create new product categories, building out the existing lineup is adding to investor optimism: Drexel Hamilton analyst Brian White set a price target for the stock this week that would see Apple valued at more than $1 trillion.
“There was a concern with the reliance on one product, but they’ve been able to find ways that aren’t necessarily innovative to continue to sustain growth,” said BTIG analyst Walt Piecyk.
The services business supports profit margins “while the company is able to maintain growth from peripheral products like AirPods and Watches.”
Apple is in a very different position from when Cook made his tabletop comment at an investor conference seven years ago. That fiscal year, revenue jumped 52 per cent as consumers fell over themselves to buy more iPhones. Now, with most developed-world consumers already using smartphones, and Apple’s annual revenue exceeding $200 billion, growth is harder to achieve.
Apple’s “Other Products” are picking up some of the slack. Sales of gadgets like the Watch, AirPods, Beats headphones and Apple TV jumped 31 per cent to $2.87 billion in the fiscal second quarter. Cook said on May 2 that Watch sales almost doubled yearover-year, and compared this appendage of Apple’s business to a Fortune 500 company.
The iPad has endured a precipitous three years, with unit sales at about a third of their peak. The response has been to offer a plethora of different options. There’s the iPad Pro, iPad and iPad Mini 4 in with at least 60 different memory, colour and connectivity options. New versions of the MacBook Pro unveiled in November meanwhile helped the average price for the laptop range jump by almost $130 to $1,392. That boosted Mac revenue growth to 14 per cent in the most recent quarter, the fastest pace in more than two years.
Apple gets almost two-thirds of its revenue from the iPhone, compared with 39 per cent in 2010. However, those sales come from 58 different iterations of the device now, up from five flavors in 2010.
And changes in iPhone designs are generating new revenue. While the iPhone 7, introduced in September, represented a modest upgrade to its predecessor, it included two significant changes. First, Apple scrapped the 3.5 millimeter headphone jack, an audio staple since the 1950s. Second, the 5.5-inch screen iPhone 7 Plus incorporated an improved dual-camera system that set it apart from the cheaper 4.7-inch screen model, the first time Apple had changed anything beyond memory and screen size between the two handsets.
Scrapping the headphone jack encouraged more customers to buy the compatible AirPod headphones, adding to Apple’s Other Products revenue, BTIG’s Piecyk said. Offering a dual camera meanwhile attracted more customers to the larger 7 Plus, helping Apple increase the average sales price for iPhones. That kept revenue from that line growing slightly. — Bloomberg