Apple proclaimed a record quarterly profit for fiscal Q1 2016 — $75.9 billion, up 2% over 2014 — but with iPhone sales declining on a year-to-year comparison for the first time since they were introduced and CEO Tim Cook saying they will drop this quarter, some analysts were rueing the end of its era of unchecked growth. At the same time, Apple offered us a new metric to ponder: the enormous amount of installed enthusiasts worldwide who use its various devices to pay for the likes of “Hello It’s Me,” “Straight Outta Compton,” and “Minecraft.”
“A growing portion of our revenue is directly driven by our existing install base,” Cook said on an earnings call transcribed by Seeking Alpha. “Because our customers are very satisfied and engaged, they spend a lot of time on their devices and purchase apps, content, and other services. They also are very likely to buy other Apple products or replace the one that they own.”
Not to mention those old devices being given or sold to someone else — as Cook, in fact, did — who will then download to his or her own heart’s content.
“The company said those devices generated $5.5 billion in services revenue in the quarter ended December, up 15% from the same period a year earlier,” writes Daisuke Wakabayashi for the Wall Street Journal. “Apple hopes to persuade investors that it should garner a premium for its services business as many of its Silicon Valley rivals do.”
“The timing of the disclosure, alongside the warning of iPhone’s decline, was not lost on observers,” writes Tim Bradshaw for the Financial Times.
“They are trying to change the narrative,” Creative Strategies Ben Bajarin tells him. “They are trying to tell the story that they are not just a hardware company. But Wall Street will only believe that when they show them the money.”
And Jackdaw Research analyst Jan Dawson says, “The key thing Apple is trying to get across here is that analysts have it wrong when they say that Apple’s revenue is inherently unpredictable.”
Some are saying other things, too.
“Apple's brand is being nibbled to death by many ducks,” Frank Catalano, an analyst and former marketing consultant, toldUSA Today’s Jon Swartz last week in a walk-up story to the results announcement.
“Apple's consumer brand is still strong,” Swartz pointed out. “But its rivals, Samsung Electronics, Amazon and Google, have joined Apple in the mix, according to a recent ranking of brand engagement and loyalty by consultancy Brand Keys.”
And, we see in a graphic accompanying the story, Android beat Apple in a one-on-one Chegg poll of 567 students nationwide who were asked, “Who has the coolest device?” But Apple is still No. 1 — 60 to 40% — as the brand they choose to use.
Still, not being cool isn’t cool when so much is riding on your sangfroid in a perilous economy.
“The iPhone, which has seen explosive growth since the launch of the iPhone 6 in 2014, contributes roughly a third of Apple's revenues,” points out Mark Sullivan for Fast Company, with it posting “a string of quarters with double-digit sales gains.”
But “the company said it sold 74.8 million iPhones in its December-ending quarter, less than 1% more than sales in the same quarter last year … well short of analysts' expectations of 76.5 units.”
One other interesting note: Apple also blamed the global economy and the strong dollar for its uncertain projections.
“We expect revenue to be between $50 billion and $53 billion,” CFO Luca Maestri said on the call. “We are providing a wider range for revenue than usual for the second quarter because of the volatility we are seeing in the economy and in the financial and currency markets.”
“Apple's growth rate, Cook noted, would have been 7 to 8% higher without these currency headwinds,” writes Ben Popper for The Verge. “It now earns about two-thirds of its revenue overseas.”
Forbes contributor Tim Worstall, a fellow at the Adam Smith Institute in London, makes the point that the rise of the dollar against the Chinese yuan means that production costs are going down in the country where most of Apple’s hardware is manufactured.
But “the actual value of what they do there just isn’t very high,” he writes. “All of the high-value stuff, the profit margin, the lovely jobs in design, coding and so on, even the expensive components like the chips, these are all still done in the U.S. And GDP, economic growth, the value we can consume, even the existence of good jobs, these are all things defined by where the value is added.”
That would include marketing, presumably.