Apple’s Q1 2017: Records for the iPhone and services, but the iPad still struggles – Macworld
Itâs fair to say that, from a financial-results perspective, 2016 was rough for Apple. Sure, the company still made billions in profit on massive revenues, but Wall Street wants to see growth and the massive iPhone sales of 2015âwhen the company introduced the larger-sized iPhone 6 and iPhone 6 Plusâwere just too big for 2016 to match.
But itâs a new fiscal year, and Appleâs latest financial results, announced Tuesday, suggest that the story of Apple in 2017 will be different. The company took a page out of its 2015 playbook, setting an all-time record for revenue, and provided guidance that it will likely show year-over-year revenue growth again next quarter. The company broke a bunch of other records, tooâfor Apple Watch, Services, and the Mac.
To be fair, Apple really does holiday quarters right. (Even the year-ago holiday quarter was a record.) Itâs the companyâs biggest quarter of the year by far, but that means thereâs than much more at stake. Bottom line: Appleâs 2016 holidays were good. Hereâs a deeper dive into some of the other interesting things we learned as a part of Appleâs regular disclosure of numbers and give-and-take with financial analysts about Q1 2017.
The iPhone might be unstoppable after all
Most of the sturm und drang about Appleâs 2016 involved a fall-off in iPhone sales from the prior year. But the iPhone is still huge. In the holiday quarter of 2016, Apple sold more iPhones than ever before, and iPhone revenue comprised a whopping 69 percent of Appleâs total revenue. (No other budget line could even manage 10 percent of the total.)
According to Apple CEO Tim Cook, iPhone 7 sales were greater than Appleâs own internal expectations, and the company wasnât able to make the iPhone 7 Plus fast enough to meet demand until January, after the quarter had ended. According to Apple, the plus model saw âexceptionally strong demand,â higher than in previous years as a part of the overall product mix, and set a record for the most Plus models sold in a quarter.
Perhaps buyers were motivated by the phoneâs two-camera system to step up from the smaller model. Regardless, itâs a phone that costs moreâand the average selling price of the iPhone went up last quarter.
With great success comes great fear about what comes next for the iPhone, of course. Apple suggests that year-over-year performance for the iPhone will be similar next quarter as it was for this one, which would suggest that iPhone sales will slightly improve year-over-year, but it wonât be dramatic.
Services is a monster in waiting
Apple has been promoting its Services budget line, which includes the App Store, iTunes, Apple Music, Apple Pay, and iCloud, for a few years now, and given its impressive and consistent growth, that makes a lot of sense. The Services line set a revenue record during the holiday quarter, led by the biggest quarter for the App Store ever.
To put the $7.2 billion in Services revenue in perspective, thatâs barely less than Apple made on the Mac last quarter, and more than the iPad. Apple expects the size of its Services business to be the equivalent of a Fortune 100 company sometime this year. Appleâs systems are driving 150 million paid customer subscriptions, which includes both Apple subscription offerings and third-party subscriptions via the App Store.
Thatâs big, but look at the ambition here: As Apple grows the installed base of Apple products, it expects services revenue to keep growing. In the next four years, according to Tim Cook, Apple expects the Services line to double. Thatâs huge.
Apple feels comfortable with its wearables
Apple doesnât disclose actual sales numbers for Apple Watch, so weâre left to dine on the scraps of information that come out during these quarterly financial disclosures. This was a good quarter for the watch, though: Cook said Apple Watch units and revenue were all-time highs. Whatâs more, Apple found the holiday demand for the Apple Watch so strong that the company âcouldnât make enough.â
This is a hard time for the wearables market, with Fitbit laying off people and most smartwatches being considered busts. The Apple Watch may not be an enormous product for Apple, but itâs clearly successful, and last fallâs release of new software and new models helped goose sales to new highs.
But the Apple Watch isnât the only wearable on Appleâs list: There are also AirPods, of course. Cook didnât say much about the AirPods, and I doubt very many of them even managed to ship during the quarter. I did find it interesting, however, that Cook discussed AirPods immediately after the Apple Watch, and then noted that Apple sees âhuge growth potential for wearables.â If you arenât considering AirPods as much a part of Appleâs wearable-device strategy as the Apple Watch, you might want to think twice.
The MacBook Pro made a whole lot of money
Last fallâs release of new MacBook Pros had about the effect you might expect: Mac revenues hit an all-time high. Because the MacBook Pro models are expensive, the net result was a major spike in the average selling price of the Mac. It led to this oddity: while Mac revenues were a record, Mac unit sales werenât.
As I tweeted some of these results on Tuesday, I was surprised to find more than one angry person replying to the reports on Mac sales. By now itâs no secret that a lot of people were unhappy with the details of the MacBook Pro launch, but I hadnât realized that some of those unhappy people were really excited about the prospect of watching the roll-out fail, as Apple reported bad Mac sales numbers that indicated that the market had turned its back on Appleâs new laptops.
Nope. Didnât happen. Biggest Mac revenue quarter ever. Rightly or wrongly, I donât think Apple is going to look at this quarterâs results and rethink its MacBook Pro strategy.
The iPadâ¦ exists
Another quarter, another disappointing result for the iPad, which was down a bunch year-over-year, with average selling price taking a big hit. Nope, the iPad still hasnât hit rock bottom. Given that only one new iPad model shipped all of last yearâthe 9.7-inch iPad Proâmaybe itâs not too surprising that it wasnât a hot holiday item. I wonder if thatâs a flaw in Appleâs strategy of selling older models as lower-priced options; people might be exited by a ânewâ iPad, even if itâs made out of cheaper or older tech, but if all you give them is a discount on last yearâs model, will people be motivated to buy?
I donât know. Books could be written on the peculiar journey of the iPad. Itâs still dominant in the category of tablets priced over $200, which are the only tablets Apple is remotely interested in selling. But as a whole, the tablet market is just not there yet. Maybe weâll get some indication of where it is, someday. But all we know now is that things are still on the decline.
Editorâs note: Charts are courtesy of Six Colors, and you can see a lot more of them here.