It’s Apple earnings day which means two things:
1) Wall Street freaking out amidst record numbers.
2) Lots of people on Twitter linking to lots of different charts trying to explain Apple’s quarter.
I’m pretty sure we’ve reached peak chart.
The issue is that the only real things these charts show at this point is that Apple is both a habitual company and a money-making machine. And, to some extent, they prove the law of large numbers. The charts aren’t going up-and-to-the-right as fast as they used to because well, there are only so many people in the world who can buy Apple products.
But there is one Apple chart that continues to interest me. It’s one Jason Snell tweeted out earlier (below). It shows the percentage of Apple’s overall revenue that the iPhone accounts for. It’s very high, just below 60%. And in fact, it hasn’t been below 50% in over a year now. And that’s not likely to change anytime soon.
You see, because of the downward trend of both the Mac and the iPod (in terms of revenue), the iPhone is becoming increasingly important to Apple’s bottom line. We’ve known for a while that Apple “lives or dies” each quarter based upon how many iPhones they sell, but it’s never been as reliant on that one device as it is right now.
Apple has been in similar positions before in their history with both the Mac and the iPod, but not nearly at these revenue levels. This means that it’s going to be very hard for Apple to release any new product to offset the iPhone’s importance in this regard. And perhaps impossible.
Yes, I know better than most: never say never with Apple. But it’s hard to envision another product line that can match the money-making ability of the iPhone. Remember that the iPhone is unique in that it’s a very expensive device that has been heavily subsidized in the U.S. by the mobile carriers. This is part of the reason why it struggles to sell as well in other countries — it’s simply much more expensive in other markets.
Apple can change that by driving down costs and thus, price — which was seemingly the strategy with the iPhone 5c. But it hasn’t proven to be enough to really juice sales.
The alternative would be for Apple to lower iPhone prices substantially. But this would probably not help the revenue picture. In fact, it may hurt it quite a bit. Apple would sell more devices, but at lower prices. Math.
The other course, which it seems like Apple is following, is to hold steady. As China and other countries become more affluent, more people may buy iPhones. Again, we’ll see.1
But I digress. None of this changes the fact that the iPhone is more important to Apple than it has ever been. And it’s hard to imagine another product changing that. A future watch product may sell at high volume, but probably not at a high enough cost to make a large dent in the iPhone revenue percentage. The same is likely true with any newfangled Apple TV set-top box. A future product more closely resembling an actual television may sell at a high cost, but probably not at an interesting enough volume to offset the iPhone.
And let’s not even get into margins.
The iPad is the seemingly obvious hope here. But as you can see in the chart, the revenue percentage is already stagnant. Maybe new models give it a boost. Maybe not…
The only real way I see the iPad revenue percentage going up significantly is if the iPhone does in fact hit a wall in terms of sales (or perhaps, as mentioned, if Apple lowers the price of the iPhone). The iPad seemingly has more room to grow as a product category yet it doesn’t seem to be growing as fast even now from an overall revenue perspective.2
And so Apple is increasingly the iPhone company. There are at least $13.1 billion reasons to suggest why this is not at all a bad thing. But any company has to worry about being so beholden to one product. Because, hey, shit happens. What if the world stops buying smartphones tomorrow because some other company comes along with something new that changes the game? Put another way: what if someone “iPhones” the iPhone?
Apple, of course, wants to be that company. They want to be the ones to disrupt themselves. But as we’ve seen with Nokia, BlackBerry, and now Nintendo, this is much easier said than done.
The glimmering hope: Apple has done it before. But never with the stakes this high…
The upside: even if the iPhone business died tomorrow, Apple would still be one of the most successful companies in the world in terms of revenues from their other businesses. Think about that for a second.3 But it’s a virtuous cycle, the iPhone makes Apple’s other products more compelling and thus, more valuable and desirable, and vice versa.
It’s not that the iPad is a bad product by any means. To the contrary, it’s an incredible product that continues to grow in popularity. But the iPhone is just that powerful in terms of revenue (and actually even more so in terms of profit). ↩
And again, this should should underscore just how massive the iPhone business has become — that business alone is larger than all of Microsoft’s businesses combined. And it’s larger than all of Apple’s businesses combined just two years ago (yes, including the iPhone back then). The only businesses more profitable are all oil companies. ↩