As iPhones stall, Apple’s ‘services’ division generates $23B
Many consumers LOS ANGELES awake to a daily nag on their iPhone warning them they’re about to run out of online storage. It’s time to open up the wallet and upgrade, Apple tells us.
Those that heed the call can pony up for one of several tiered iCloud plans, which start at 99 cents monthly.
It turns out, all those pennies — and the Apple marketing machine that keeps the reminders humming — add up.
Even as iPhone, Mac and overall sales fell in the recent quarter, the bright spot was Apple’s “services” division, which is softwarerelated, including iTunes, iCloud, the App Store, Apple Pay and Apple Music.
The iPhone is still Apple’s biggest source of revenue, making up $24 billion of the $42.4 billion for the third fiscal 2016 quarter. But quietly, services has nabbed second place, rising 19% to nearly $6 billion in sales, followed by Mac computers at $5.2 billion, the iPad at $4.9 billion and “other” (which includes Apple TV and the Apple Watch) at $2.2 billion.
Services in the latest quarter represented 14% of Apple’s total revenue, up from 10% a year ago. That’s at a company dominated by one product, the iPhone, which has represented about two-thirds of revenues.
Services is such a huge chunk of sales, CEO Tim Cook said he expected the division to “be the size of a Fortune 100 company next year,” in a call with analysts.
In the last 12 months, services has generated $23 billion in revenue.
For Apple Pay, which allows you to pay for goods at the point of sale via the smartphone, Cook said, “the growth is astronomical, but the base is very small.”
In the current Apple universe, many are starting to ask if smartphones, and one particular model, have peaked. Sales have fallen for two consecutive quarters, and folks aren’t upgrading every two years, like clockwork, as they used to. They’re holding onto their devices longer.
But they’re also using them more than ever. Apple on Wednesday said it had sold its one-billionth iPhone. “When people are tied to an Apple ecosystem where everything works together, they are more likely to buy more things that are part of Apple services,” analyst Tim Bajarin of Creative Strategies says.