Analyst says the wearables unit is Apple's growth engine right now

Analyst says the wearables unit is Apple's growth engine right now
During Apple's fiscal third quarter, which covered the months of April through June, the company's wearables unit was the star of the show. During the period, iPhone sales declined 12% on a year-over-year basis, but wearables revenue rose 48.3%. The division includes very popular devices like the Apple Watch and the wireless Bluetooth AirPods, both the leading products in their respective categories, and quarterly revenue for the group rose from $3.73 billion to $5.53 billion on an annual basis.

Today, UBS analyst Tim Arcuri said (via Seeking Alpha) that the unit is "moving the needle" for Apple's overall growth, and is under-appreciated by investors and other analysts. He points out that for the first time in the history of the company, during the fiscal third quarter, year-over-year growth in wearables was higher than the year-over-year growth in the services segment. The latter unit includes Apple Music, Apple Pay, iCloud, the App Store, Apple News+, Apple TV+, AppleCare and more. This division is Apple's second-largest and is its most profitable; while services generated a record $11.05 billion in revenue for the period, that was only a 12.7% gain from the $10.2 billion that the segment grossed during the same quarter last year.

Third-generation AirPods could be arriving this Fall with protection from water and noise-cancellation

Arcuri says that the AirPods are showing "phenomenal demand," while only 7% of iPhone users own a pair. That leaves plenty of room for sales of the accessory to keep moving higher. Earlier this year, Apple released a second-generation version of the wireless Bluetooth earphones swapping the W1 chip for the new H1 component. The new chip lengthens the battery life on the device while improving latency. This means that "switching between devices while listening to music on iPhone, Apple Watch or iPad is more seamless than ever with two times faster connect times." The new AirPods also have always-on Siri and can be purchased with a wireless charging case. If the new iPhones have reverse wireless charging as many expect, the new feature could be used to charge up AirPods sitting in the wireless charging case.

The third-generation AirPods, possibly launching this coming Fall, are expected to have many of the features that were missing from the model released this past March. These AirPods should be water-resistant, made of a material that makes them "stickier" and less likely to fall out of users' ears, and include noise-cancellation. There is also the possibility that different colors will be offered.

As for the Apple Watch, TF International's star analyst Ming-Chi Kuo said in a research note to clients disseminated today that the company's Series 5 timepiece will be unveiled alongside the 2019 iPhones; that is supposed to take place on September 10th. The next version of Apple's smartwatch will be released this Fall says Kuo, and will look very much like the current Series 4 model.

With iPhone sales struggling, Apple has been counting on the services unit for growth. It has been targeting $50 billion in revenue for 2020, double the $25 billion that the segment grossed in 2016. But both its smartwatch and ear-worn accessories have been showing stronger growth in demand. During the calendar second quarter, Apple shipped 5.7 million smartwatches compared to the 3.8 million it delivered during the same time period last year. That is a 50% growth rate. The entire industry shipped 43.6% more units during Q2 2019 than it did during the same three month period exactly one year before. Meanwhile, last year Gartner estimated that the number of ear-worn devices shipped by manufacturers globally will rise from an estimated 46.12 million units this year to a mind-blowing 158.43 million by 2022. 

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