By Jason Snell
July 31, 2018 5:58 PM PT
Diving into the details of Apple’s (boring?) record quarter
The Apple financial numbers are out, and the company set a new record for its financial third—wait, where are you going? Don’t you want to hear the same old story about how Apple is a company that continues to generate billions in revenues and profits, quarter after quarter, and seemingly will do so for many years to come?
I know, even this kind of success can get boring, but I think if you look closer you might notice some interesting indications about where Apple’s product lines are going…
The iPhone: Remember “peak iPhone”?
The release of the iPhone 6 and 6 Plus was so huge that Apple spent a year living it down when its follow-up sales couldn’t possibly match it. And yet here we are a few years later and iPhone sales have surpassed that peak. A lot of that has to do with the slow march of iPhone growth—without the iPhone 6 aberration the numbers show pretty clearly that these sales figures were inevitable.
Now, iPhone unit sales are still down from the days of the iPhone 6. What’s changed is that the average selling price of an iPhone is up—way up. That’s mostly thanks to the iPhone X, which has a record-breaking price tag that hasn’t seemed to matter one whit in terms of consumer acceptance. (And for those who don’t want to spend $1000 on an iPhone X, apparently the iPhone 8 and 8 Plus hits the spot.)
The rumors suggest that this fall Apple is going to make some more interesting tweaks to the iPhone product line. But at this point, would anyone bet against Apple succeeding at whatever they try? Ha ha ha! That’s a trick question! Of course someone will. That’s what keeps The Macalope in business. But they’ll probably be very obviously wrong, is what I’m saying. You can’t stop the iPhone, and you apparently can’t even hope to contain it. It rolls on.
The iPad: Meh
The math is pretty straightforward: Apple sold 11.6 million iPads, which is slightly more than they sold in the year-ago quarter, but iPad revenue was down 5 percent, which means the average selling price of an iPad dipped. This isn’t surprising, because the more pricey iPad Pro models are long in the tooth and the cheap iPad is relatively new. What it suggests is that the iPad sales price will rise once new iPad Pros arrive (presumably this fall), but in the meantime the release of the low-cost iPad is keeping things afloat.
When you eliminate seasonality, it’s starting to feel like the iPad is a remarkably stable product. Maybe Apple’s just going to keeps selling 44 million iPads a year. It’s not the heights of 2014 when it looked like that number was more like 74 million, but it’s still a pretty good market. And there’s nobody else even playing it when it comes to tablet devices.
The Mac: Guh
Mac sales were down 13 percent year over year, and revenue was down five percent. It’s understandable given the environment—the year-ago’s quarter saw new MacBook Pros being released in June, while this year they didn’t release until July, after Apple’s third quarter ended.
Apple keeps talking about new growth in the Mac in various markets and uses that seasonality as an excuse, but it’s been three straight quarters of sales and revenue flops. At what point do we say that Apple has a Mac problem? The optimist would probably answer that last year’s “Mac roundtable” was an indication that Apple realized it had made some poor Mac decisions, and that the new features in macOS Mojave are another sign of the company’s recommitment to the platform.
I hope so. But still, the Mac has currently replaced the iPad as the product line that makes me cringe every three months when sales figures are released. That’s not great.
Apple Watch: Good, I guess?
Apple doesn’t quote Apple Watch sales numbers, but speaks about them in relative terms—a trait that’s more common coming from one of Cook’s fellow titans of tech, Jeff Bezos. (Bezos is famous for putting up bar charts that lack any numbers, a phenomenon known as a “Bezos Chart”.)
In any event, during the conference call with analysts on Tuesday, Cook said the watch had “record June quarter performance, with growth in the mid-40-percent range… the Apple Watch has hit an air pocket and has gone to a whole different level.”
Is that how air pockets work? You hit them and then fly… upward?
The future is… Services?
For several years now Apple has been talking about how its Services revenue line is going to provide massive growth for the company, and they haven’t been wrong. The amalgamation of the App Store, Apple Music, AppleCare, and cloud services is growing faster than any other part of Apple. It’s the kind of thing that makes financial analysts very excited. And knowing that there’s more on the way—like a video streaming service—makes those analysts very happy.
As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)
It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas.
Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.
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