Lower growth in one key U.S. metric could hurt Apple's most profitable unit

Lower growth in one key U.S. metric could hurt Apple's most profitable unit
As iPhone sales turn sluggish, Apple is counting more and more on the installed base of iPhones for revenue growth. To make this transition from hardware sales to work, Apple has aggressively expanded its Services unit by adding Apple News+, Apple TV+ and the upcoming Apple Arcade to its offerings. The Services segment is Apple's second largest division and is it's most profitable. Besides the previously mentioned additions, under the Services umbrella, you'll find Apple Music, the App Store, iTunes, AppleCare, Apple Pay and more. Apple is looking to expand revenue generated by this division from the $25 billion it collected in 2016 to $50 billion next year. For the fiscal second quarter ended in March, Apple generated $11.45 billion of Services revenue.

So as we pointed out, Apple really depends on the installed base of iPhones. But there is some bad news for Apple on this front; according to CIRP (via 9to5Mac) growth in the installed base of iPhones in the U.S. barely moved the needle in the first quarter of 2019. CIRP says that this number rose by only 4 million to 193 million at the end of March resulting in just 2.1% growth over the three month period. On a year-over-year basis, the growth in the installed base of iPhones in the states was 12%. To show you how growth in this key metric is slowing, for the first quarter of 2018 the sequential growth was 4% and 19% year-over-year.

The latest figure released by Apple showed that at the end of the company's fiscal first quarter, which ended in December, the global iPhone installed base was 900 million units. That gives Apple a large number of potential subscribers to collect recurring revenue from.

Services revenue could be hurt by the attacks on the so-called "Apple Tax"

While Apple no longer releases the number of iPhone units sold each quarter, it does release revenue figures for the device. During the fiscal first quarter, iPhone revenue declined 15% year-over-year. Things got worse during the fiscal second quarter (January through March) when revenue attributed to the device declined 17% year-over-year. The upgrade cycle has expanded, but if current members of the installed base don't replace their currently used iPhone with a newer iPhone model, the installed base could start to decline.

And Apple's Services segment could face some pressure from companies and the courts fighting back at what is known as the "Apple Tax." This is the 30% cut that Apple takes on revenue generated in the App Store for subscriptions, paid apps and in-app payments. Back in January, AB Bernstein analyst Toni Sacconaghi worried what would happen to Apple's Services revenue if there were to be a big rebellion against this "tax." And sure enough, this has already started to happen with music streamer Spotify making complaints to the European Commission (EC). Now, the EC's competition commission will investigate the claim and could fine Apple as much as $26.6 billion. And last week, the U.S. Supreme Court ruled that Apple is a direct seller of apps in the App Store and can be sued by consumers claiming that app prices are higher than they should be because of the "Apple Tax."



1. torr310

Posts: 1679; Member since: Oct 27, 2011

Stop treating Apple fans as sheeps!

2. cmdacos

Posts: 4272; Member since: Nov 01, 2016

Expect Apple to increase pricing on their horribly executed services.

7. iloveapps

Posts: 870; Member since: Mar 21, 2019

At least iphones lasts longer than tour cheap androids and has a higher resale value.

9. TS020

Posts: 52; Member since: Feb 16, 2019

Still using a Galaxy Note 3, all it's needed is a battery change which took $10 and 20 seconds. Also takes MicroSD cards so I have upgrade options there if I want to keep it going.

12. dvlprr

Posts: 70; Member since: May 08, 2019

I'm Sorry For That.

14. dvlprr

Posts: 70; Member since: May 08, 2019

Why Do You Keep Coming Back To Something You Hate So Much?! Why!?? Mind Your Own Android BS. And That's To All Fandroids. Stop Talking and Taking Interest In Apple. What's In It For You? What?! I'm F'n Tired Of You Fandroids.

19. cmdacos

Posts: 4272; Member since: Nov 01, 2016

You ok muffin? My curiosity on apple articles is more nostalgia than anything. Apple's new features bring back great memories.

30. iloveapps

Posts: 870; Member since: Mar 21, 2019

He seems to like to comment on every Apple articles and yet when his Samsung is on the bad side, you cannot see them.

34. darkkjedii

Posts: 31338; Member since: Feb 05, 2011

You might wanna get laid dude, great stress reliever.

3. oldskool50 unregistered

People aren't holding on to phones longer because they want too. Apple forced them too by jacking up the price where all of them outside the US cost over $1000. Since Apple doesnt sell cheaper models like Samsung does, then they dont offer an alternative model to choose. In order to get a cheaper iPhone, you have to buy an older model. No one is going to do that when you can get a brand new Android with the latest hardware for the same price or less than an older iPhone. Example, the iPhone 7 and 8 and X are decent buys. But the X is a year old and it still between $550 and $600. You can get a new Samsung A or M series for.less than that and when you consider brands like Oppo, Huawei and Xioami; buying an older iPhone just doesnt make sense. Considering Samsung top tier phones are also $1000, people wont be upgrading those, and anything less than an S or Note is a downgrade. That's why I get a phone each year, because I only pay for half, i sell it for 60% it's original price, and simply get another the next year. That way i get to own 2 phones brand new for the price of one. Unless you are on an iPhone lease or upgrade on demand plan, you have to stick with the phone until the lease is up before you trade. Apple did this to themselves. Services arent going to generate the same margin as hardware does. 3rd parties offer far better services free or at a lower cost. Like Apple charges $25 for you to upload your media library. Google charges nothing. Apple only offer 5GB of cloud free, while everyone else offers at least 15GB. Spotify has more media avail vs Apple even at the same sub price. Apple cant even best their own iPhone with another product. Apple is falling hard and I dont pity them.

13. dvlprr

Posts: 70; Member since: May 08, 2019

Samsung Also Sells Their S Lineup Starting 999$

20. midan

Posts: 3019; Member since: Oct 09, 2017

"People aren't holding on to phones longer because they want too." Come out of your bubble, they definately are. Why would they buy new one if there's nothing wrong with their current ones?

23. Back_from_beyond

Posts: 1441; Member since: Sep 04, 2015

Actually he is right. There are now 3 year payment plans for new devices, so people are more or less forced to keep it for 3 years to get it at a lower monthly cost and that's only because the new devices are ridiculously expensive. If you had given those people the choice of having it cheaper so they can upgrade every two years, they would jump at the chance. People like having something new and better. Just look how much cameras have improved the last few years, battery life, screens, there definitely is reason to want to upgrade every two years, but high-end phones now cost too much to really do it. The same goes for those who would upgrade each year, phones are getting too expensive and make people reconsider upgrading every two years.

24. midan

Posts: 3019; Member since: Oct 09, 2017

"People like having something new and better. " Most don't, i don't know if it's difference in US but here in EU for example new big TV's are very low cost and i can't understand why people still keep using small bad TV's. But it's because it's enough for them, they don't think same about TV than i for example. Same goes to phones and everything else in this world, people are not that demanding, Camera improvements are very very minor and it's not reason to upgrade either or battery life or screen. Again we who are interested about these stuff look very differently these things and we want new and better.

45. oldskool50 unregistered

Let me try too restrain myself and not call you something that you are. So let me say it like this. No one said that most people upgrade on a regular basis. Most people dont upgrade every year. However, MILLIONS OF THEM DO. Every time you fanboys lose an argument, you wanna take about percentages. Apple has according to then, about 900M peoplenusing iPhone. Even if only 10% upgraded every year, that still over a million people. It doesn't need to be the majority Midan and no one ever said it was. You need to stop 'acting' like you lack even a piece of common sense. Stop being a delusional fanboy Midan and grow a frikkin brain for Christ sakes.

48. wickedwilly

Posts: 727; Member since: Sep 19, 2018

Of course people like new and better, you are wrong. They might not see the need or like paying for the privilege, but it does not mean they do not want it!

26. midan

Posts: 3019; Member since: Oct 09, 2017

We don't have any 3 year payments and phone here isn't even cheaper if you buy it like that, people just overall doesn't care, it's enough what they have. Just like most people buy ok sounding headphones when they could put little bit more money and buy a lot better ones, but they don't need that, they are happy with what they have and it's perfectly ok.

44. oldskool50 unregistered

Wait. Let me repeat what YOU said. Why would they buy a new one if there's nothing wrong with the current one? Did I just say I upgrade my phone every year? There are fanboys, who upgrade EVERY YEAR even though their is nothing wrong with the phone they have. I love gadgets. I don't buy new ones because I need them. I buy them because I want them and there are MILLIONS of people just like me. When Apple sells iPhones, the vast majority are upgrades as is with Samsung too. Most of them are upgrading from a perfectly working phone no matter how old it is, even if its just a few months old. I have purchased as many as 4 phones in a single year before. I can't even believe you even asked me that. I have the money. I can upgrade as often as I want too. Many people can. I don't have to keep a phone for more than a year, like YOU do. Because unlike you, I'm not poor. You can't afford to upgrade every year. I can and I do. Sucks you can't be me. Doesn't it! I can't even wrap my head around the fact you asked a stupid question like, who would upgrade a perfectly working good phone. So let me ask you, do you hold on to your phones until they completely stop working? When you upgrade, arent they in working order? Because mine always are. Now you have completely proven how classically stupid fanboys are in general. You're not smart enough to tackle me bruh, you should stop. Bit I didnt make you look stupid this time, you did that totally on your own. Like you normally do!!!!

53. mackan84

Posts: 561; Member since: Feb 13, 2014

Anyone that don’t see the headache to set up a new phone every 6 months have got to get a more social life. Even a straight copy of the old phone takes up to one hour and then there is services that requires more fiddle. Must be crazy to wanna look forward to that in the span of anything but 2-3 years.

4. LawnBoy

Posts: 198; Member since: Feb 23, 2019

Apple hasn't innovated since the 6 and really all they did was copy sammy and make a larger phone

5. sun0066

Posts: 276; Member since: Feb 12, 2011

I like apple but with google services !

6. cmdacos

Posts: 4272; Member since: Nov 01, 2016

Still can be painful but agree it's much better.

36. Valdomero

Posts: 698; Member since: Nov 13, 2012

I do exactly the same, emails, photos, cloud folders, everything Google from my iPhone.

8. iloveapps

Posts: 870; Member since: Mar 21, 2019

This is really good news for apple even if it is minimal growth. How about the growth of Samsung for the past 5 years? Their profit and revenue sucks in mobile.

16. TheOracle1

Posts: 2340; Member since: May 04, 2015

Keep on watching Samsung whilst Huawei and the Chinese army bitch slap you.

31. iloveapps

Posts: 870; Member since: Mar 21, 2019

Slap? Apple continue to dominate profit marketshare. As far as I know, both Samsung and Huawei had $300 SRP. Apple would be so glad to have 1.4B active idevices while android have 2.5B.

37. Dealler

Posts: 22; Member since: May 03, 2019

Show us where did Sammy touch you in wrong places. If Samsung lost the whole mobile division, it would be just a tiny part of their business. Apple would be f**ked.

38. midan

Posts: 3019; Member since: Oct 09, 2017

"If Samsung lost the whole mobile division, it would be just a tiny part of their business. Apple would be f**ked." Again Android user who have absolutely zero understanding how big Apple is. Apple could run their business making huge amount of money even if they end their mobile division tomorrow. With their money they can do whatever they want, so why someone would say Apple would be fucked

39. TBomb

Posts: 1579; Member since: Dec 28, 2012

Apple losing 50% of it's business is a huge hit. No matter how big you are, 50% is 50%. Apple's services also rely heavily on their ecosystem. If, for example, the all smartphones sales stopped throughout the entire world, Apple would lose 50% of it's business. Their services would also suffer because their services rely so much on their iPhones and the iOS ecosystem. Many other OEMs don't have 50%+ of their revenues relying on smartphone sales AND their services so closely aligned with their smartphones. Companies like One+ would be extinct. But LG, Samsung, Sony, Google... they would survive because they offer products unrelated to smartphones. Apple would have to rely on Mac products to stay afloat. Even their wearables would suffer because of the lack of smartphones in the world.

41. midan

Posts: 3019; Member since: Oct 09, 2017

If Apple would lose their mobile business they could just open iOS for other OEMs and they would be like Android, i'm sure there's lot of OEMs who would want to stand out with iOS. For example companies which you just mentioned, their business would be back on the positive. This whole thinking is so stupid and pointless. The point is if Apple for some reason would have to exit mobile business they have all the money to do whatever they want. They wouldn't be screwed.

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