Apple’s weakening iPhone sales
In the last decade, the iPhone has been the top revenue generator for Apple (AAPL). However, in the first half of fiscal 2019, the company’s iPhone revenue fell 15.8% YoY (year-over-year) to $83.0 billion.
Similarly, the contribution of iPhone sales to Apple’s total revenue fell to 58.3% in the first half of fiscal 2019 compared to 66.0% in the first half of fiscal 2018. Recent iPhone sales weakness has encouraged Apple to focus more on its Services segment.
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Apple’s Services segment’s growth
In the second quarter of fiscal 2019, Apple’s revenue from its Services segment rose 16.2% YoY to $11.5 billion compared to $9.9 billion in the second quarter of fiscal 2018. In the first quarter of fiscal 2019, the company reported 19.1% YoY growth in its Services segment’s revenue.
During Apple’s second-quarter earnings conference call, CEO Tim Cook revealed that the company had “reached a new high of over 390 million paid subscriptions at the end of March, an increase of 30 million in the last quarter alone.”
On March 25, Apple announced some new services, including Apple TV+, Apple News+, Apple Arcade, and Apple Card. During the company’s earnings call, Cook expressed optimism about these new services and called them “a game-changing array of new services.”
What this means for investors
In the last couple of quarters, solid double-digit positive growth in Apple’s Services segment’s revenue has given it a chance to divert investors’ (SPY) (QQQ) attention from its falling iPhone sales.
While the trend in the company’s Services segment’s revenue growth looks impressive, its Services revenue still isn’t comparable with the revenue in its Product segment. In the coming quarters, Apple needs to intensify its efforts to revive its iPhone sales in key markets such as China and Europe.