Apple’s shares rose more than 4 percent in early trading on Wednesday as investors accepted the fact that iPhone is no longer the technology giant’s crown jewel and that the company appears to have shifted its focus to wearables and services, both of which now account for half of its revenue.
After Tuesday’s market close, Apple announced that its revenue for the fiscal third quarter managed to rise 1 percent year-on-year to US$53.8 billion, beating the average analyst forecast of US$53.39 billion.
The iPhone contributed US$25.99 billion, or 48 percent of the total revenue, dropping 12 percent from a year ago. It has been the company’s top revenue generator over the past seven years, contributing 63 percent of total sales last year.
Fortunately, Apple did well in its other businesses – wearables and services, in particular – to offset the iPhone sales decline during the period. And as upcoming models are not expected to spur widespread upgrades among iPhone fans, Apple hopes the two other businesses will play a more important role to support its share price in the coming months.
The wearables, home and accessories category is now the group’s fastest-growing business, contributing US$5.53 billion for the quarter, up 48 percent from a year ago. The segment includes devices such as the Apple Watch and AirPods.
Apple’s services business is its second-biggest, with sales having risen 13 percent from a year ago to US$11.46 billion.
Wearables and services took a larger slice of Apple’s sales pie largely as a result of weak iPhone sales.
Apple chief executive Tim Cook said revenue excluding iPhone was up 17 percent from a year ago. While this is good news for inventors as it shows that the company is able to post double-digit growth despite the tough market, it also indicates that the iPhone is becoming a burden to the group.
Apple reported 420 million paid subscriptions to services, up from 390 million in the previous quarter. It is confident of reaching its goal of having 500 million paid subscriptions in the next three quarters as long as it is able to keep adding 30 million each quarter.
Apple still has two subscription-based services to be launched in the near future: Arcade and Apple TV +.
Apple said it remains on track to double revenue from services by 2020, compared with 2016.
Another emerging growth driver for the company is its Apple Pay business, which capitalizes on the huge iPhone base. The business saw nearly a billion transactions per month during the quarter, more than twice the volume a year ago.
Apple Pay launched in 17 countries in the quarter, completing its coverage in the European Union. It is now available in 47 markets.
Based on its latest quarterly performance, Apple Pay is now adding more new users than PayPal and its monthly transaction volume is growing four times faster.
Apple Pay is showing bright prospects as a mode of payment for public transport, and the company is stepping up efforts in various markets to encourage iPhone users to use it as the preferred digital wallet.
In Hong Kong, it is expected that iPhone users will soon be able to connect their Octopus Card to the Apple Pay system so that they can use their iPhone to pay for public transport.
This offers an exciting opportunity for Apple Pay to boost its business in Hong Kong, considering that Octopus recorded around 15 million daily transactions worth HK$210 million last year.
Apple Pay is expected to grow further with the upcoming rollout of the Apple Card, a credit card designed for use with Apple Pay on Apple devices such as the iPhone and Apple Watch.
Apple, of course, understands that the growth of its services business depends on the iPhone as all of its products are interconnected to form a unique ecosystem.
Apple may now be selling fewer units of the iPhone, compared with previous years, but it has more than a billion devices currently using all sorts of Apple services and content.
The group’s prospects depend a lot on its huge base of active iPhone users. As such, Apple must do everything to retain them and prevent them from switching to Android.
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