The companys stock was up nearly 7% late on Wednesday morning, propelling the tech giant to a $1 trillion market cap.
Apple on Tuesday reported earnings that beat analysts expectations on both income and earnings per share.
But what stood out the most in the companys Q2 2019 report was how much its services segment grew over the last quarter.
Alternate Title: Apple is Microsoft?
iPhonecellular phone made by Applesales stalling and the Chinese smart-phone market dominated by home-grown handset makers, Apple(apple.com) has increasingly turned toward services for its next major growth opportunity.And with the business growing 16% year-over-year with $11.5 billion in revenue through the quarter, Apples services are proving to be a boon for the company.
In this Wednesday, Nov.28, 2018, file photo Microsoft(microsoft.com)
CEOChief Executive OfficerSatya Nadella listens to a question as he sits in front of the Windows logo during the annual
MicrosoftTechnology companyCorp.shareholders meeting in Bellevue, Wash.Theres no doubt the iPhone will continue to be a steady source of revenue for
AppleTechnology companyfor the foreseeable future.But as its services side matures, the tech giant is beginning to look a lot more like some of its biggest Silicon Valley rivals, including
MicrosoftTechnology companyand Google.That is,
AppleTechnology companyis becoming a software company.
The services bet
Apples services segment is currently made up of iCloud, iTunes, the application Store, Apple Pay, AppleCare and Apple News+
The tech giants bet on services has been in the making for some time.Back in Jan. 2017, CEO Tim Cook announced that he desirable Apples services to double in revenue by 2020.That means the segment will have to hit $48 billion a year by that deadline based on the companys 2016 services revenue.
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But that estimate came before Apple announced its Apple News+, its Apple TV+ and Apple Arcade offerings, which are expected to add to the services segments revenue once they debut later this year.
Oprah Winfrey habla en el Teatro Steve Jobs durante la presentacin de nuevos productos de Apple, el lunes 25 de marzo del 2019 en Cupertino, California.The all-important Services business remains a linchpin to the company`s valuation as we believe on a standalone basis this segment is worth between $400 billion and $450 billion and is still in the early days of being fully monetized with a new streaming service set to be officially unveiled/GA in the next 6 months that will compete with the likes of Netflix, Disney, and Amazon(amazon.com) among others, Wedbush analysts Daniel Ives and Strecker Backe wrote in a research note.
But Apple will have to get the pricing right on itsApple TV+ streaming serviceif its to truly take on its main rivals in the sector.Were still waiting on pricing information from Apple, but with Disney+ set to launch at $6.99 per month and Netflixs entry-level plan starting at $8.99, Apple will need to price its offering aggressively.
While Apples transition to a services company comes as the tech giants iPhone sales have slowed, this isnt a sleight-of-hand move to take the focus off of Apples iPhone troubles.The company currently has more than 1 billion active devices on the market, and pushing those users towards services represents a huge opportunity.
Apples focus on services is justified.It is not an attempt to distract investors from declining iPhone sales it is the natural extension of the hardware/software ecosystem Apple has built, Loop Ventures Gene Munster wrote in a research note following Apples earnings report.
Microsoft and Google, some of Apples biggest rivals, are already well entrenched in the software space, with Google(google.com) offering not only its massive find engine business and Android operating system, but
GoogleTechnology companyMusic and
GoogleTechnology companyPlay Movies and TV, as well, though Google doesnt produce original shows or movies.
Microsoft, meanwhile, has its Windows business, not to mention its already enormous cloud segment, which continues to see massive growth.Microsoft has leveraged that cloud business to helppush its own market cap to $1 trillion.
View photosSatya Nadella, CEO of Microsoft, speaks with Herbert Diess, at a "fireside chat" to the media about a joint project between the two companies called the Volkswagen Automotive Cloud on Feb. 27, 2019 in Berlin, Germany.Photo by Sean Gallup/Getty Images)MoreSure, both Microsoft and Google offer their own hardware, with Microsoft selling its Surface line of products and Xbox console and Google its Pixel smart-phones and tablet, but they dont come anywhere near their respective software businesses.
iPhone will still be important
While Apple is leaning more toward software and services, and will continue to do so until the next major advancement in hardware comes along, iPhone sales will remain important to the company.
The iPhone still accounts for the vast majority of Apples revenue, and will continue to do so until the services segment is fully matured.
Apples install base is what makes the services business viable in the first place, so it will be imperative for the company to entice consumers to upgrade their existing handsets, and bring on new users.
But create no mistake it will be services that help push the company going forward.