Services/apps mobile

Apple Predicts Services Boom as Sales Rise

Apple brought an end to its sequence of quarterly sales declines thanks to strong interest in its recently launched iPhone 7 handset during the October-to-December quarter.

The gadget maker also reported double-digit growth from services and said it expects to double the size of that business in the next four years.

Revenues were up 3%, to more than $78 billion, compared with the year-earlier period, but net income fell by 2.6%, to about $17.9 billion, due to rising costs.

Following three quarters in which sales have declined, the revenue growth sent the Apple Inc. (Nasdaq: AAPL) share price up nearly 3% in after-market trading on the Nasdaq, with the company guiding for year-on-year sales growth of between 1.8% and 5.7% in the January-to-March quarter.

Even so, analysts have expressed some concern that so-called "replacement cycles" are lengthening, as customers put off upgrading to later-edition iPhones.

During an earnings call, executives also acknowledged that the strengthening US dollar is an unwelcome headwind on the international front.

"When you think about upgrade rates, clearly, this issue of the strong dollar doesn't help us," said Luca Maestri, Apple's CFO, according to a Seeking Alpha transcript, noting that Apple has been forced to make sharp increases to prices in some countries.

The iPhone remains by far the biggest revenue generator for Apple, accounting for nearly 70% of sales in the recent quarter.

While iPhone revenues were about 5% more than in the year-earlier quarter, iPad sales dropped by 22% over the same period, to about $5.5 billion, and sales of other products were down 8%, to roughly 4%.

Apple made about $7.2 billion from sales of Mac computers, 7% more than a year earlier, but its results show just how dependent it has become on the iPhone range, the original model of which first appeared in mid-2007.

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Interestingly, Apple's services business now looks poised to overtake the Mac as the second-biggest revenue generator for the company. Sales were up 18% in the quarter, to about $7.2 billion, and executives see a bright future for the business.

Apple does not break out the details of its services revenues, but they include sales of digital content and services, as well as its AppleCare technical support function, the Apple Pay digital wallet and various licensing activities.

"We can grow … our developer community in a number of emerging markets," Maestri said. "We see the amount spent per paid account growing as well, so we think that the App Store is going to be a significant driver of growth."

While the App Store may be driving most of the sales growth, Maestri also flagged improvements at the iCloud storage business and expressed optimism about the prospects for its digital music arm.

Apple CEO Tim Cook also tried to address concern that new iPhone releases are becoming less dramatic, featuring fewer radical new features that customers really value.

"I think the smartphone is still in the early innings of the game. I think there's lots more to do," he said. "When I look at all of these things, usage going up, app developers still innovating, we've got some exciting things in the pipeline, I feel really, really good about it."

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

kq4ym 2/12/2017 | 12:16:37 PM
Re: iPhone company Apple will have to keep reinventing itself probably over the next decade to make sure that current 70% in phone revenues doesn't trip them up if the demand changes for those products. Whether services is the right move, who knows, but they'll find out in the next few years whether that may take up any slack resulting from the phone revenues if they happen.
DanJones 2/1/2017 | 5:54:31 PM
Re: iPhone company Well if they can reinvent the user interface again, then sure smartphones will rise again. I can't see exactly how yet, but I'm just a lowly tech hack. 
Mitch Wagner 2/1/2017 | 1:12:56 PM
iPhone company Common wisdom is that smartphones are a mature market. Tim Cook disagrees. I'm with Cook on this one. I don't know what the smartphone of 2022 will look like, but it'll be very different from today.

It makes sense that iPhone sales would have slowed this year. The iPhone 7 looks the samea as its predecessors, and has no marquee new features. On the other hand, it has better battery and a better camera, and more storage -- three areas that are very important to customers. 

Rumor has it that the 10th anniversary iPhone 8, due late this year, will be a big advance over the 7. So there's that. 

The iPad is the real trouble spot. The line needs to be either reinvented from the ground up, or abandoned. 
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