Apple’s most memorable events have always ended with “one more thing” — Steve Jobs’ famous tagline for the surprise reveal of a new product.

Next week’s product launch, however, will feature one fewer thing.

For the first time in almost a decade, Apple’s flagship September event will be missing the company’s most famous and profitable product, after the launch of the much-anticipated 5G iPhone was delayed to October due to coronavirus-related supply chain disruption.

Instead, at Tuesday’s “Time Flies” event, the company will showcase its accessories business and other hardware, including the sixth iteration of the Apple Watch, a new iPad Air — and possibly over-the-ear headphones called AirPods Studio and a lost-items tracker reportedly called AirTags.

“The oxygen that those products get is going to be unprecedented,” said Ben Wood, analyst at CCS Insight. “They will be the story, rather than just being ‘the other thing’.”

Line chart of Revenues, trailing 12-months ($bn) showing Apple has shifted away from reliance on the iPhone

Beyond the iPhone

The absence of the iPhone 12 has created an opportunity for Apple to demonstrate to the public what Wall Street has already recognised — that the company has shifted from reliance on the smartphone into an increasingly diverse portfolio of products.

In the fiscal year ending this month, Apple is projected to boast $274bn revenue and $57bn in profits — gains of just 17 per cent and 7 per cent, respectively, on the $234bn revenue and $53.3bn in net profits the company posted in 2015.

But though the growth appears sluggish, Apple’s stock has quadrupled over the same period to a market value of more than $2tn — a discrepancy that reflects a move towards becoming “a technology or consumer platform, rather than a more cyclical hardware company”, as Morgan Stanley’s Katy Huberty said in a note to clients.

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“I’m sure they are absolutely going to spin a narrative that this is more of a services and wearables event and push the value of the non-iPhone stuff,” said Ben Bajarin, analyst at Creative Strategies.

With iPhone sales no longer the driving force they once were for the company, other areas are becoming increasingly central to the business.

In the past five years, iPhone revenue has plunged 16 per cent — accounting for 44 per cent of Apple’s total sales in the last quarter, down from 63 per cent. However its wearables and accessories divisions have soared, driven by the success of Apple Watch and AirPods, with growth up 144 per cent to $6.45bn. Revenues in the iPad unit climbed 45 per cent to $6.45bn, while services are up 162 per cent to $13.2bn.

Tuesday’s event is an opportunity for Apple to highlight the myriad ways in which it is driving growth from nearly 1bn iPhone users, keeping them in its walled garden with companion products that help to smooth out earnings and drive revenue higher in an off-year for smartphone sales.

For every 100 iPhones sold, Apple ships 49 pairs of AirPods and 14 Apple Watches, according to estimates from Canalys. By contrast, for every 100 flagship Galaxy S phones that Samsung sells, it ships 34 Galaxy Buds and 14 companion watches.

Apple’s devices typically sell at a higher margin, too. For instance, Samsung sells its Galaxy Buds for $85 and its Plus version for $140, whereas AirPods cost $134 and the Pro version costs $229.

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In the global smartwatch market, Apple took a 40 per cent market share in the second quarter — double that of its nearest rival, Huawei, according to Canalys.

Meanwhile, one new addition to its Services business could be an all-in-one subscription that includes music, video, games, news and more, rumoured to be dubbed “Apple One”.

Line chart of Revenues as % of total  showing The iPhone is still a huge revenue driver despite a falling sales

New frontiers

Bulls think this growth is just getting started. Loup Ventures’ Gene Munster estimates that only 9 per cent of iPhone users have an Apple Watch now — roughly 100m people — but he projects this could reach 50 per cent over the next decade, implying 50m unit sales a year. 

In the “true wireless” headphones category, Apple took a 38 per cent market share in the second quarter, four times greater than its nearest competitor, Xiaomi, Canalys data show.

Jason Low, analyst at Canalys, points out that Apple can keep growing sales as it is just beginning to push into “spatial audio” — a way to deliver immersive, surround sound by using sensors in the AirPods.

He said Apple headphones were soon expected to be able to “tap into the processor” on the iPhone for new capabilities, leveraging a hardware integration that traditional rivals such as Bose might not be able to match. 

“Having direct leverage of the smartphone creates this advantage and opportunity for a more seamless first-party integration, and this is a huge barrier for any third-party brand.”

The delay of the iPhone 12 could nevertheless hit sales of the upgraded Watch, iPad Air and other devices expected to be revealed, said Mr Bajarin at Creative Strategies.

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“I worry about sales being delayed because people are waiting to see what’s up with the new iPhone.”

Luca Maestri, Apple’s finance chief, warned investors in July that the next iPhone would launch “a few weeks later” than usual. The stock nonetheless went on to hit record highs.

But with a truncated holiday sales window and the pandemic complicating freight and retail, Apple may still be at risk of missing Wall Street’s sales forecasts for the December quarter, said Mr Bajarin.

“Delayed sales are not lost sales, so it will just be pushed into the first quarter of next year,” he said, “but historically the holiday quarter is a big revenue quarter and a big iPhone quarter. That’s at risk.”

Via Financial Times