By Jason Snell

October 30, 2020 2:41 PM PT

A few other notes on Apple’s fiscal fourth quarter

Note: This story has not been updated since 2020.

I had a few final observations about Apple’s fourth-quarter 2020 results Thursday that didn’t make it into my Macworld column that I wanted to make before they get trapped in my notebook forever.

Services margins are spectacular

This isn’t new, but it’s worth restating from time to time: One reason for Apple to emphasize its growing Services business is because of its contribution to overall company profit. During the fourth quarter, the products that we traditionally think of as Apple’s core had a gross profit margin of 30%. That’s a very profitable business there! But check out the gross margin for Services: 67%.

Yeah. That’s right. A dollar of Services revenue generates more profit than two dollars of product revenue.

When is a bundle not a bundle?

The new AppleOne bundle launched Friday, and on the call Tim Cook was asked something by Jeriel Ong of Deutsche Bank that those of us who write and talk about Apple have speculated about a lot, which is if the company would ever consider rolling its hardware into future subscription bundles?

Cook’s response was… interesting? “We do view that people like to pay for their hardware, or at least some substantial portion of it, monthly,” he said. “And so that’s the reason that we have implemented installments in our stores and online…. That begins to look like a subscription perhaps to some buyers, because they’re used to holding the phone for X period of time and then turning it over and using the residual value of that phone in a way that gives them a de facto kind of subsidy on a new phone. And so there is something today in the market that works somewhat similar.”

Not an answer. Installment plans do end up looking like subscriptions, it’s true. And Cook didn’t quite say no to the idea. I wouldn’t be surprised if Apple has considered the added complexity of rolling installment plans and services bundles into one and has decided to learn to walk before it can run—after all, it’s AppleOne’s first day. But if there’s any advantage for Apple to gain in converting all of those installment plans into something different, I don’t expect Apple would pass up that opportunity.

Wearables rule.

We have talked for years about how spectacularly important Services revenue has become for Apple, and it’s only fair—it accounted for 22% of Apple’s overall revenue this quarter. It’s a big deal. It hit an all-time high for revenue this quarter. And it’s been growing in the upper teens percentage-wise pretty much every quarter for years now. All good things.

But please turn to Wearables/Home/Accessories, the Category Formerly Known as Other.

For the last three-plus years, this category has been growing at a spectacular rate. It’s more seasonal than Services—what isn’t?—but if you focus on the trend line, it just keeps going up. This quarter’s 21 percent year-over-year growth figure is actually on the low side, suggesting that the category may be cooling off—a cool-off, by the way, that still means it’s growing faster than Services. At $7.9 billion, it has surpassed iPad revenue. And the iPad is doing really well!

I have no idea how much of this is AirPods and how much of this is Apple Watch. (Probably very little of it is HomePod.) But it’s a category that deserves attention as a portion of Apple’s overall business, because it’s even hotter than Services.

Tim dodges on iPhone pricing

Analyst Chris Caso of Raymond James asked Cook directly about the fact that the iPhone 12 costs more than the iPhone 11, requesting a walk through the process behind the price shift. Here was Cook’s response:

The iPhone 12 family starts at $699 in many places, and the deals that people are really paying are very different than that, because a lot of people, particularly in this country, but also in several other countries in the world connect to a carrier plan. And of course those offers are much more aggressive. And so the price that a customer’s paying is probably the most important one. The iPhone 12 is at $799.

I think what you’re saying is there’s a $200 difference there, but I would guess that people are viewing it more as a $300 difference between the 12 mini and the 12 Pro. And so we’ll see what the mix turns out [to be]. Right now we have no data other than 12 and 12 Pro. We lack the data on the 12 mini and the Pro Max, because we’re not taking orders yet. But what we try to always do in pricing is give the customer a great value. And I feel like we really did that this year. And that’s despite, as was mentioned earlier, all of the extra features that we into the phones, including 5G.

What a textbook dodge! He restated the question, laid out the price differences, and then said… nothing, really. At least he suggested that the most important difference is between the lowest-priced iPhone 12 and the lowest-priced iPhone 12 Pro.

But in terms of offering “more color” about why the iPhone 12 costs $100ish more than the iPhone 11? Nope. Nice try, Caso.

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