Apple may be transitioning from a hardware company to a services business.
The biggest bombshell from Apple’s record-breaking Q4 earnings was not the staggering number of units they sold. It is the fact that they will no longer be sharing those numbers with the public going forward. CNBC put it this way, “Apple’s decision to stop breaking down unit sales of iPhones and iPads is a ‘defining moment’.”
“The iPhone-maker is making a transition from being a big hardware player to a services business, Jay Srivatsa, CEO of Future Wealth, told CNBC’s ‘Squawk Box’ on Friday. He explained that most of the tech giant’s hardware products in recent years have been ‘evolutionary’ instead of ‘revolutionary.’”
If true, this would mark one of the greatest tectonic shifts in the modern technology landscape. The idea is so big, it seems unlikely. That said, there are some warning signs to consider.
What is a company supposed to do after inventing the iPhone? There is likely not another iPhone-like product to be invented for some time. The modern smartphone was birthed in 2007. It will have a long run as the hub of digital experiences for a long time to come. Everything Apple has done since the iPhone has been in support of the iPhone.
Considering the iPhone’s price and positioning in the market, it is probably very close to saturation. There are only so many people in the world who can buy a $1,000 smartphone are inclined to be a part of the Apple ecosystem. We may not yet be at peak iPhone. But the gains are smaller and slower.
What are Apple’s other major growth opportunities in hardware? There is no reason to believe that computers are going to make a comeback as a growth market. We are now in maintenance and replacement mode. iPads may have room to grow, but as replacement computers, not as a distinct category.
The Apple Watch is an important accessory. But even the cellular model is still only an accessory for the iPhone. If you do not have an iPhone, you will not be buying an Apple Watch. The iPod started out as a Mac-only accessory and didn’t take off until it became available to the Windows-using masses. If the Apple Watch makes the leap to Android, it might have more growth potential.
Despite these facts, Apple continues to make record-breaking revenue. That is because they have found more ways to get more money from new and existing customers for what is essentially the same product portfolio. Apple’s price hikes have been most notable this year. But prices have been going up for the last three years. It now costs substantially more to buy into new Apple products than it did three years ago. That is not sustainable in the long run.
Apple’s unit sales are essentially flat. There is a little growth, but very little. Too much of Apple’s perceived value is based on how many units Apple is expected to move. Apple is looking to change the narrative. Tim Cook compares it to a check-out at a grocery store. It doesn’t matter how many units you have in the cart. What matters is the overall value of the cart.
We have heard the last unit sales numbers from Apple in the Tim Cook era. From this point on, all estimates of iPhone, iPad, and Mac sales will be just that, estimates. Outside of total revenue and profit, the only numbers we are likely to get from the new Apple are services and customer sat. For now, services are almost at $10 billion, and customer satisfaction is through the roof.
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