Remember the iPod? In the early 2000s, the music-playing devices were a revelation to 20-somethings who had grown up with Sony Walkmans, carting bundles of cassettes around on vacation or putting "mix tapes" together for their mates. Suddenly you could download your entire music library to one gadget. When they eventually morphed into Internet tools, the excitement had long gone. These days they are like a relic of a bygone early-digital era, when dial-up was cutting edge and Yahoo had kudos.
Something similar is happening to the iPhone. The device that superseded the iPod as Apple's big seller accounted for 62% of all revenues made in the first nine months of 2018. By this year's June-ending quarter, that figure had crashed to 48%. For the first time in a long time, most of Apple's revenues did not come from smartphone sales. Life after the iPhone is a serious possibility.
Table 1: Apple Sales ($M)
|April-to-June 2019||April-to-June 2018||YoY change|
|Wearables, home and accessories||5,525||3,733||48%|
Of course, the iPhone is not about to be discontinued, like some iPods, or become as scarce as the still-in-production iPod Touch, which does not even get its own breakout line in Apple's results. Apple made nearly $26 billion from iPhone sales in the June-ending quarter, putting it a long way ahead of any other product. Smombies hooked to their iPhones will be clanging into lampposts for a good few years.
But they probably won't in the next 15 to 20, about the time it took for the iPod to become anachronistic. iPhone sales were down 12% year-on-year partly because the latest models contain nothing genuinely new to excite customers. And while some Chinese smartphone makers are still blazing ahead, the smartphone may not survive the emergence of new 5G-connected trinkets. Sticking a music player into a phone ultimately killed the iPod. Putting call functionality into a connected earpiece or pair of spectacles might finish off the phone -- or make it far less valued.
Companies including Apple have stumbled in their efforts to develop a smartphone successor. Someone may eventually make the kind of breakthrough Apple did with its first iPhone way back in 2007. Alternatively, connectivity could become so pervasive that gadgetry loses its luster. In this reality, services might not get packaged into a single device. Instead, a multitude of connected objects might each have a specific purpose: the earpiece for calling; the spectacles for reading or gaming; the street furniture for mapping or retail queries.
The good news for Apple is that its transition to a post-iPhone future is well underway. On the hardware side, "wearables, home and accessories" -- the unit that might eventually crank out an iPhone successor -- has enjoyed one of its best quarters ever, with sales up 48%, to more than $5.5 billion, compared with the year-earlier period. But it's the services business, recently fortified with the launch of the Apple TV+ subscription service, that holds the most immediate promise. Sales there were up nearly 13%, to about $11.5 billion, and Apple anticipates a surge in subscriptions following its TV push. Add in continued growth at the Mac and iPad divisions, and Apple was able to report a 1% increase in total revenues, to $53.8 billion, despite the iPhone apathy.
The earnings update wasn't all roses and no thorns. Net income tumbled almost 13%, to a little more than $10 billion, compared with the year-earlier quarter. But that was largely because of a 15% increase in research and development expenses, to $4.3 billion, that could buoy future sales. Apple's share price is up 5% in early Wednesday trading, to $219.25, and has risen from a 2019 low point of $142.19 at the start of the year. The trick for Apple will be to keep reporting growth while the iPhone slowly goes the way of the iPod.
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— Iain Morris, International Editor, Light Reading