Apple's services business booms amid continued reports of weak iPhone X demand

Posted:
in General Discussion edited March 2018
Apple's services business is booming, and it could serve to offset reported softness in demand for the iPhone X, as well as smooth out the valleys in seasonal earnings drops expected to arrive this quarter.




According to a research note by RBC analyst Amit Daryanani, Apple is projected to see around 20 percent growth in services revenue this year thanks to "increased monetiziation [sic] of install base" and "growth in the aggregate iOS install base."

Apple CEO Tim Cook during a quarterly conference call last year said the company aims to double the size of its service business to $48 to 50 billion by 2020. That goal is well on its way to being met, as the segment currently generates over $30 billion, Daryanani notes.

"We believe [Apple] stock should continue to outperform the market driven by strong FCF generation, ability for outsized capital allocation and a growing iOS install base that generates sustained and recurring FCF growth," Daryanani wrote.

Apple's services portfolio includes the App Store, iTunes, Apple Music, AppleCare, Apple Pay, iCloud and licensing. In its most recent quarter, Apple posted $8.5 billion in revenue in its services category, up 13 percent year over year.

Daryanani's note comes at a time when various industry analysts have pointed out soft demand for the iPhone X, saying the handset is not selling as expected in part due to its high price tag

Nomura Instinet's Jeffrey Kvaal, in a note issued Monday and cited by CNBC, saw "signs of trouble" in iPhone demand, sentiments echoed by Longbow Research analysts Shawn Harrison and Gausia Chowdhury, according to Fortune.

"Our demand checks suggest little improvement in iPhone demand in 2018," Kvaal writes. "Corresponding supply chain downticks suggest iPhone expectations have yet to bottom."

The analyst sees "further signs of trouble at the high end of the market," suggesting price is a major barrier to entry. Low interest in high-cost handsets does not appear to be an Apple-specific issue, as Kvaal's colleagues in Korea note Samsung Galaxy S9 preorders were down 30 percent.

The narrative of lower-than-expected iPhone X demand has been forwarded by a number of high-profile analysts, including KGI's Ming-Chi Kuo, who in a note to investors in January said he believes Apple has reduced orders for the device.

For its part, Apple says iPhone X helped drive its highest-revenue quarter ever, with the average selling price of iPhone rising to an all-time high of $796.42. In a follow-up conference call, CEO Tim Cook touted iPhone X sales performance, saying the device outsold its iPhone 8 and 8 Plus stablemates every week since its launch in November.

Comments

  • Reply 1 of 17
    wood1208wood1208 Posts: 2,545member
    humble to listen to customers is better than arrogance like I know better. If I am Apple, I would make that 6.1" LCD iPhone X with thin across top bezel to cover sensors/camera etc.Rest of iPhone X is awesome.
  • Reply 2 of 17
    StrangeDaysStrangeDays Posts: 11,583member
    wood1208 said:
    humble to listen to customers is better than arrogance like I know better. If I am Apple, I would make that 6.1" LCD iPhone X with thin across top bezel to cover sensors/camera etc.Rest of iPhone X is awesome.
    Thank goodness you’re not Apple. The four round corners of screen are way nicer and cooler to me than just another forehead — especially if there were no matching chin. Yuck. 
    watto_cobra
  • Reply 3 of 17
    MuntzMuntz Posts: 26member
    wood1208 said:
    humble to listen to customers is better than arrogance like I know better. If I am Apple, I would make that 6.1" LCD iPhone X with thin across top bezel to cover sensors/camera etc.Rest of iPhone X is awesome.
    What?
    watto_cobra
  • Reply 4 of 17
    StrangeDaysStrangeDays Posts: 11,583member
    Oh, and are we back to the “iPhone X has weak demand!” narrative, despite what the actual CEO said on the quarterly call? Whatevs. 
    JFC_PAGeorgeBMacLukeCagewatto_cobra
  • Reply 5 of 17
    tmaytmay Posts: 5,430member
    Oh, and are we back to the “iPhone X has weak demand!” narrative, despite what the actual CEO said on the quarterly call? Whatevs. 
    You can, almost anyway, never go wrong following Apple's guidance, and Apple's guidance was somewhere in the neighborhood of 14-17 % YOY revenue growth for this quarter, which works out to 60 to 62 million iPhones, if my recollection is correct.
    watto_cobra
  • Reply 6 of 17
    FolioFolio Posts: 698member

    For the first time sales numbers of flagship phones of Apple have pretty much been relegated to a big yawn. Nothing better proves that Apple’s finally broken free of the “annual innovation curse.” Fewer people see it as a behemoth that next year might plummet like Blackberry, or vaporize like Nokia handset.

    Perhaps the X is too far ahead of its time for ordinary folks. That’s a blessing in disguise for the outer years. (Fwiw, I’d never switch back. Love my X now that iOS 11 quickly improved.)

    Most projections show Apple's bar chart (with dips in past, as above) steadily increasing. Maybe it'll sink in no longer cyclical HW company. 


    watto_cobra
  • Reply 7 of 17
    FolioFolio Posts: 698member

    With Apple services component becoming impossible to ignore, bigger than AWS, and smoothing out revenue flow, Apple becomes a rare sort of conglomerate. Diverse but synergistic. What’s most important is that this diversity of revenue and dwell time with the consumer, positions Apple as the most trustworthy source to usher in a future Internet  where intelligent agents are as prevalent (or more so) than humans. 

    Basically, if Apple plays its cards right, more people will trust Siri 10.2 to be their chief sidekick 24/7 than the operative snoops from Google, Amazon, Microsoft, Facebook, etc. Because Apple gets its much of its revenue elsewhere in products it can make the assistant highly discernible, protective of your privacy and attention, yet obviously leaps more capable than today. You share more because you know it has your back. My nightmare is that Apple cedes this to others. I really believe Apple can play huge positive role here. (I wish I could be as confident in other companies, and hope some other good alternatives come forth, just to spread the risk.) 


    lostkiwiwatto_cobra
  • Reply 8 of 17
    foggyhillfoggyhill Posts: 4,767member
    So, when guidance comes out right on cue, those bozos will just slink away in darkness for a few weeks and then reemerge in 4-6 weeks.
    lostkiwiwatto_cobra
  • Reply 9 of 17
    KuyangkohKuyangkoh Posts: 730member
    Huhummm, anal-lyist.....there you go again.

    watto_cobra
  • Reply 10 of 17
    avon b7avon b7 Posts: 5,904member
    Oh, and are we back to the “iPhone X has weak demand!” narrative, despite what the actual CEO said on the quarterly call? Whatevs. 
    That quarterly call was for the Christmas season. Apple's strongest and has little to do with this quarter or any other. The iPhone X was new and very expensive. It's logical for demand to fall off after Christmas (and possibly dramatically so) because of the high price. If there is a 'narrative', it is the narrative of common sense.

    That said, during the previous earnings period the X was actually available for only 8 weeks so some of the demand might have spilled over into this quarter.

    Apple's guidance for this quarter was obviously lower than for the previous one and obviously includes everything - not just iPhone X - but, if this rumour has any final relation to what's really happening, it will also be bolstered (with regards to the same period last year) by services revenue.

    If you want to judge the success of the phone you should wait until October. IMO, it has already done its job from a business perspective if you treat it as a limited-edition type phone. If you are trying to see it as a revenue driver throughout the year you are probably setting your sights too high.

    That isn't a 'narrative', it's common sense.
    muthuk_vanalingam
  • Reply 11 of 17
    croprcropr Posts: 1,051member
    Folio said:

    Basically, if Apple plays its cards right, more people will trust Siri 10.2 to be their chief sidekick 24/7 than the operative snoops from Google, Amazon, Microsoft, Facebook, etc.


    I trust something that works, and Siri is no part of it
    muthuk_vanalingam
  • Reply 12 of 17
    tmay said:
    Oh, and are we back to the “iPhone X has weak demand!” narrative, despite what the actual CEO said on the quarterly call? Whatevs. 
    You can, almost anyway, never go wrong following Apple's guidance, and Apple's guidance was somewhere in the neighborhood of 14-17 % YOY revenue growth for this quarter, which works out to 60 to 62 million iPhones, if my recollection is correct.


    The classic analyst weasel move would be that they will say most of the 60-62 million phones were the 8, 8S and the older models and that the X underperformed.

    I'd expect Tim Cook to hint at the performance of the X, even if they'll never break up the figures by model.

    watto_cobra
  • Reply 13 of 17
    k2kwk2kw Posts: 2,048member
    tmay said:
    Oh, and are we back to the “iPhone X has weak demand!” narrative, despite what the actual CEO said on the quarterly call? Whatevs. 
    You can, almost anyway, never go wrong following Apple's guidance, and Apple's guidance was somewhere in the neighborhood of 14-17 % YOY revenue growth for this quarter, which works out to 60 to 62 million iPhones, if my recollection is correct.


    The classic analyst weasel move would be that they will say most of the 60-62 million phones were the 8, 8S and the older models and that the X underperformed.

    I'd expect Tim Cook to hint at the performance of the X, even if they'll never break up the figures by model.

    Most people replace their phones when their old phone breaks or dies. I think that there will always a high percentage of Apple phone users who will get the top of the line X.
    The iPhone 8 will probably underperform but the Average Selling Price of Apple will stay high because of the X.    Phones are real good now especially dual Camera phones like the iPhone X, 7+ or 8+.    Android doesn't have the demographic to drive high end phone sales in volume.   Android users have decided a $300-$500 is more than good enough and $100 is fine for most.   Hopefully Apple will be able to ramp up the mid market sales for greater volume with Manufacturing in India of older models.   In 5 years a phone like the 7+ will be $100-$200.  

  • Reply 14 of 17
    cropr said:
    Folio said:

    Basically, if Apple plays its cards right, more people will trust Siri 10.2 to be their chief sidekick 24/7 than the operative snoops from Google, Amazon, Microsoft, Facebook, etc.


    I trust something that works, and Siri is no part of it
    Honestly, same. I like most of what Apple offers, but I've never been a fan of Siri
  • Reply 15 of 17
    StrangeDaysStrangeDays Posts: 11,583member
    avon b7 said:
    Oh, and are we back to the “iPhone X has weak demand!” narrative, despite what the actual CEO said on the quarterly call? Whatevs. 
    That quarterly call was for the Christmas season. Apple's strongest and has little to do with this quarter or any other. The iPhone X was new and very expensive. It's logical for demand to fall off after Christmas (and possibly dramatically so) because of the high price. If there is a 'narrative', it is the narrative of common sense.

    That said, during the previous earnings period the X was actually available for only 8 weeks so some of the demand might have spilled over into this quarter.

    Apple's guidance for this quarter was obviously lower than for the previous one and obviously includes everything - not just iPhone X - but, if this rumour has any final relation to what's really happening, it will also be bolstered (with regards to the same period last year) by services revenue.

    If you want to judge the success of the phone you should wait until October. IMO, it has already done its job from a business perspective if you treat it as a limited-edition type phone. If you are trying to see it as a revenue driver throughout the year you are probably setting your sights too high.

    That isn't a 'narrative', it's common sense.
    Calling the normal, post-holiday reduction from peak holidays sales “weak” is exactly why it’s a false narrative. You have to make up your mind — is it normal, or is it weak? 

    It’s normal. Thus my comment. Not sure what yours is about. 
    watto_cobra
  • Reply 16 of 17
    avon b7avon b7 Posts: 5,904member
    avon b7 said:
    Oh, and are we back to the “iPhone X has weak demand!” narrative, despite what the actual CEO said on the quarterly call? Whatevs. 
    That quarterly call was for the Christmas season. Apple's strongest and has little to do with this quarter or any other. The iPhone X was new and very expensive. It's logical for demand to fall off after Christmas (and possibly dramatically so) because of the high price. If there is a 'narrative', it is the narrative of common sense.

    That said, during the previous earnings period the X was actually available for only 8 weeks so some of the demand might have spilled over into this quarter.

    Apple's guidance for this quarter was obviously lower than for the previous one and obviously includes everything - not just iPhone X - but, if this rumour has any final relation to what's really happening, it will also be bolstered (with regards to the same period last year) by services revenue.

    If you want to judge the success of the phone you should wait until October. IMO, it has already done its job from a business perspective if you treat it as a limited-edition type phone. If you are trying to see it as a revenue driver throughout the year you are probably setting your sights too high.

    That isn't a 'narrative', it's common sense.
    Calling the normal, post-holiday reduction from peak holidays sales “weak” is exactly why it’s a false narrative. You have to make up your mind — is it normal, or is it weak? 

    It’s normal. Thus my comment. Not sure what yours is about. 
    It's a comment on supply chain checks. It could be, erm, true. Yes, they could be ''weak". Apple could be cutting down on production. How is that a 'narrative'?

    It's the 'third' phone. New ground. Uncharted territory.

    There is no 'narrative'. You are just being oversensitive.

    Why not simply accept things at face value?Nobody has anything to go on except for these supply chain reports, rumours, anecdotal evidence etc.

    And throw in a dash of common sense. Do you think that 'weak' demand is impossible?
    muthuk_vanalingam
  • Reply 17 of 17
    wood1208 said:
    humble to listen to customers is better than arrogance like I know better. If I am Apple, I would make that 6.1" LCD iPhone X with thin across top bezel to cover sensors/camera etc.Rest of iPhone X is awesome.
    Lectures Apple on humbleness.
    Follows up with “if I am Apple I would...”
    watto_cobra
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