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Apple’s Troubles: Could iPhone Subscriptions Be a Solution?

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Apr. 11 2019, Published 9:30 a.m. ET

Apple’s iPhone troubles

In the quarter ending in December, Apple’s (AAPL) iPhone sales fell 14.9% YoY (year-over-year) to $61.1 billion. Apple’s iPhone sales accounted for ~69.2% of its total sales during the quarter. Weaker demand in the Chinese market due to rising competition in the segment and the longer smartphone replacement cycle hurt iPhone sales in the last quarter.

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iPhone subscription model

According to a CNBC report, Bernstein analyst Toni Sacconaghi thinks that Apple should offer a subscription for its products including iPhones. Sacconaghi said, “If Apple was able to turn the iPhone business into a subscription business … [and] somehow convert more consumers to buying something that’s transactional today into a subscription model, we think that would make a world of difference and that would be something we’d view very positively.”

Sacconaghi doesn’t think that Apple’s valuation is compelling. Right now, he advised that investors don’t do anything on Apple stock.

Last month, Apple announced many new services including video streaming and news subscription on March 25. The announcement suggested that the company is willing to shift its focus more to its services segment. Currently, Apple’s product segment, especially iPhone sales, is declining.

While Apple’s loyal customer base might help grow its services segment’s consumer base faster than its peers, the services probably won’t replace its product segment as its key revenue source. Apple is scheduled to release its second-quarter earnings on April 30. If the company reports a steeper-than-expected decline in its iPhone sales during the quarter, it could hurt investors’ sentiments and drive the stock lower.

At the end of February, Apple accounted for ~9.61% and 3.34% of the Invesco QQQ Trust (QQQ) and the SPDR S&P 500 ETF’s (SPY) total portfolio, respectively.

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