Apple is the leader in the smartphone segment, however 70% of its revenues comes from the iphone. This is good when the sales number goes up, but in all markets sometimes sales go sideways or not at a steep line upwards. In an article by Reuters, in late January, Apple worked with the telecommunication companies which sell the iphone to increase sales and it worked. The phone is still expensive, but new credit initiatives which enable customers to pay monthly installments without paying interest helped sales.
Apple is trying to decrease the 70% by focusing on the Services business or recurring revenues. The Services business includes AppleTV, streaming service, iCloud storage, fees from app developers and those sectors are increasing. In the quarter they amount to $12.7 billion and analysts see the Services business as a $50 billion target.
Linking to dividend paying stocks, one of the reasons as an investor you like utilities is they have a near monopoly and everyone needs to have access to electricity and pay monthly or quarterly. In similar fashion, Apple has dominated the smartphone segment, but it was a one off purchase. It was always a challenge to ensure the next phone is an iPhone. Services mean monthly payments and greater sense of loyalty for the customer and ensured money for the company. We all like innovation, but recurring revenues are what makes investors happy.
There are more questions than answers, till the next time – to raising questions.