When Apple posts its earnings results for the March quarter later this afternoon, don’t expect to see any huge surprises. As we covered previously, Apple’s projected revenue for the quarter will likely fall due to an anticipated year-over-year decline in iPhone sales. Hardly a surprise, Tim Cook projected an iPhone sales shortfall during Apple’s last earnings conference call. Cook, however, did caution that the drop-off in quarterly iPhone sales may not be as severe as some bearish analysts on Wall St. might assume.
“We do think iPhone units will decline in the quarter,” Cook said this past January. “We don’t think that they will decline to the levels you’ll talk about.”
Because of the expected decline in iPhone sales, some on Wall St. believe that Apple’s quarterly revenue will see a year over year decline for the first time since 2003. As it stands now, Wall St. is anticipating Apple to post revenue of about $52 billion, compared to $58 billion in revenue recorded during the April quarter of 2015.
While disappointing iPhone sales will undoubtedly affect quarterly revenue, it’s entirely possible that Apple’s revenue won’t be as low as some believe. The reason? People keep ignoring the fact that Apple’s range of services (App Store downloads, Apple Pay, Apple Music etc.) has been growing at an incredible clip over the past few quarters. That said, it’s not outside the realm of comprehension that the decline in iPhone-related revenue will be partially offset by surprisingly high revenue from Apple’s line of services.
From 2014 to 2015, revenue from Apple services shot up to nearly $20 billion, representing an impressive 10% increase year over year. And as the number of active iOS users only continues to rise with each passing quarter, it stands to reason that services-related revenue will be a good deal higher than it was during the same quarter a year-ago.
“Because our install base has grown quickly,” Tim Cook said this past January, “we have also seen an acceleration in… what has become one of the largest service businesses in the world.”
What’s more, Cook made a point of noting that Apple’s services arm generates move revenue than most Fortune 500 companies.
Writing for Quartz, Mike Murphy explains:
Apple has figured out, through its app and content stores, after-sales services, Apple Pay, and a few other services, how to continue to make money off of customers who aren’t buying new phones. It’s done an excellent job of locking customers into its ecosystem, and in a note to investors last week, Credit Suisse analysts predicted that Apple’s services business could continue to grow from about $14 billion to over $35 billion—about 30% of Apple’s gross profits—by 2020. This quarter’s number, when iPhone sales are likely declining, could indicate how robust that theory is.
As it stands today, Apple services account for about 15% of Apple’s gross profits.
The following chart, also via Quartz, speaks volumes.
All that said, even if Apple’s revenue drops for the quarter, it’s certainly possible that the decline will not be as severe as Wall St. anticipates.