After a long history of treating business users with benign neglect, Apple is touting enterprise customers and partnerships as strategic to delivering record-setting third-quarter results.

Mitch Wagner, Executive Editor, Light Reading

July 31, 2018

6 Min Read
Apple Stops Taking Businesses for Granted

Apple has always been a favorite of enterprise users, despite Apple's history of neglecting them. But Apple's attitude is changing, as it bragged outright about enterprise partnerships on its quarterly earnings call with financial analysts Tuesday.

On the call, Apple touted its enterprise cloud relationships in retail, pro sports and end-user deployments.

Overall, revenue for the third quarter ending June 30 was $53.3 billion, up 17% year-over-year, with quarterly earnings per diluted share at $2.34, up 40%. International sales comprised 60% of revenue. (See Apple Reports $53.3B 3Q Revenue, Up 17%.)

It was Apple's best June quarter ever and fourth consecutive quarter of double-digit revenue growth, Apple CEO Tim Cook said in a statement. "Our Q3 results were driven by continued strong sales of iPhone, Services and Wearables, and we are very excited about the products and services in our pipeline," Cook said. Apple will likely introduce new iPhones in late September, along with iOS 12, an upgrade to its mobile operating system, and Mojave, an upgrade to its desktop OS. Also, Apple will likely release new iPads in the fall.

On the enterprise side, Apple touted strengths in financial services, railways and automotive companies, as well as popularity with enterprise employees.

Figure 1: Apple Store, Barcelona Apple Store, Barcelona

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Financial services are using the iPad for digital signatures for customer consent, compliance, new account openings and services transactions, Luca Maestri, Apple senior vice president and chief financial officer, said on the company's earnings call. Railways are using iPhones and iPads to support operations, training, passenger engagement and maintenance. And "leading global automative companies" are deploying iPads in dealerships for sales enablement and end-to-end customer services management, he said.

Companies are giving employees a choice of equipment, and these companies, including Salesforce and Capital One, are deploying Macs based on employee preference, Maestri said. At Salesforce, the majority of its 35,000 employees are using Macs. "Companies tell us that the Mac has been instrumental in helping them attract and retain talent, while providing strong security, streamlined deployment workflow and significantly lower total cost of ownership," Maestri said.

Apple is seeing strong interest from enterprises in Business Chat, its cloud service that lets consumers interact with companies directly from the iPhone and iPad, and continue on the Mac and Apple Watch. (See Inside Apple's New 'Business Chat'.)

Dish Network LLC (Nasdaq: DISH) deployed Business Chat across its pay-TV business to allow consumers to reach a live agent with questions, account changes and scheduling appointment or order pay-per-view movies and sporting events. Citizens Bank Park, home of the Philadelphia Phillies, is testing Business Chat to let fans order drinks during games. The trial is using the iPhone to scan QR codes on seat backs, which launches Business Chat in messages, and order drinks, pay and get them delivered "without missing a moment of game play," Maestri said.

For Apple Pay, the company saw "well over" 1 billion transactions in the last quarter, triple the amount from a year ago, with growth accelerating into the spring. Apple had more total transactions "than great companies like Square," Cook said, and more mobile transactions than PayPal. Apple Pay is live in 24 markets worldwide, with more than 4,900 bank partners, and Germany coming on board this year. eBay is beginning to enable sellers to accept Apple Pay in the US, and CVS pharmacy and 7-Eleven will roll out support in locations worldwide this fall. Public transit systems in 12 metropolitan areas support Apple Pay for passenger payment, Cook said.

Next Page: Let's Not Talk About Mac Sales

Services are a big and growing part of Apple's future. "We had a stellar quarter in services, which generated all-time record revenue of $9.5 billion, fueled by double-digit growth in our overall active installed base," Cook said.

Apple's services category includes both business and consumer cloud services, including such digital content as music and video as well as Apple Pay, licensing and AppleCare product service contracts. Apple is on track to double its 2016 services revenue by 2020, Cook said. Services revenue was $7.17 billion in the quarter ending December 2016.

Services revenue was up 31% year-over-year. Services made up nearly 18% of total revenue this year, compared with 16% in the year-ago quarter.

Paid subscription services from Apple and third parties have now surpassed 300 million, up more than 60% in the past year. "Revenue from subscriptions accounts for a significant and increasing percentage of our overall services business," Cook said. Nearly 30,000 apps offering subscriptions are available in the App Store.

The App Store set a new June-quarter revenue record, as it approached its tenth anniversary this month, Cook said. The App Store has generated nearly twice the revenue of Google Play so far in 2018, based on third-party research evidence, Cook said.

Apple Music revenue grew more than 50% year-over-year, and cloud services revenue grew more than 50% year-over-year, Cook said.

Apple's communications services are hitting record usage, with an all-time high for monthly annual users for Apple Messages and FaceTime calls made, and growth accelerating March to June, Cook said.

Siri requests already exceed 100 billion so far this year, and the number of articles read on Apple News more than doubled year-over-year, Cook said.

Services and the iPhone powered Apple growth, with the iPad and Mac dragging. Apple sold 41 million iPhones in the third quarter of 2018, for revenue of $29.906 billion. iPhone unit sales were up a modest 1%, while revenue was up 20%. On the iPad, Apple sold 11.553 million units, for $4.7 billion revenue, up 1% in unit sales and down 5% in revenue. The Mac sold 3.72 million units for $5.33 billion in revenue, down a painful 13% in units and 5% in revenue.

Apple is losing its domination of a shrinking smartphone market, according to a report Tuesday from IDC. For the second quarter of 2018, smartphone vendors shipped 342 million handsets, down 1.8% year-over-year, and the third consecutive quarter of year-over-year declines, and only the fourth quarter of decline in history. And Huawei topped Apple as the second-biggest smartphone vendor, IDC says.

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— Mitch Wagner Follow me on Twitter Visit my LinkedIn profile Visit me on Tumblr Follow me on Facebook Executive Editor, Light Reading

About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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