Apple is generating more revenue from services than iPhones, now has over 1 billion paying service users

Apple’s third-quarter earnings showed a mixed performance, as iPhone revenue experienced a decline, dropping from $40.66 billion to $39.67 billion compared to the same period last year.

This decrease is not unexpected given the overall downward trend in the smartphone market. However, the company’s services division proved to be a bright spot, with revenue rising from $19.6 billion to $21.2 billion YOY, surpassing analysts’ expectations.

Apple’s big chunk of earnings comes from services
When announcing the earnings, Apple emphasized the success of its services division, stating that it achieved an all-time revenue record during the June quarter, driven by over 1 billion paid subscriptions. CEO Tim Cook also highlighted the company’s continued strength in emerging markets and robust iPhone sales.

In the challenging landscape for smartphone makers due to various factors such as slower upgrade cycles, higher prices, supply chain limitations, and economic challenges, Apple managed to stand out, partly due to its growth in the Chinese market. Sales in Greater China increased by 8 per cent YOY, allowing the company to gain market share in the world’s largest smartphone market.

Services vs Products
Apple distinguishes between “services” and “products” in its financial reporting. The “products” category comprises iPhones, iPads, Macs, and Apple Watches, while “services” include various subscriptions like Apple TV+ and Apple Music streaming services, iCloud cloud storage subscriptions, and Apple’s share of mobile app developer subscriptions from the App Store.

Although Apple does not consistently disclose its total number of subscribers, it revealed it had over 860 million subscriptions one year ago, indicating an impressive addition of 140 million new subscriptions in a single year. This significant growth highlights the increasing importance of software, cloud, and streaming services as revenue generators for Apple, a company traditionally known for its hardware products.

Over time, the contribution of services to Apple’s total net sales has almost tripled since the first quarter of 2018, where it accounted for just over 10 per cent Currently, subscriptions account for approximately 26 per cent of Apple’s total revenue, reflecting the substantial growth and success of their services division.

Emerging markets for iPhone, and Apple’s AI
Apple’s CEO, Tim Cook, expressed his delight in announcing a record-breaking revenue in the Services division for the June quarter. This achievement was driven by the impressive number of over 1 billion paid subscriptions. Additionally, the company witnessed strong iPhone sales in emerging markets, contributing to its continued success. Cook emphasized that Apple remains committed to advancing its values, incorporating innovation that enhances the lives of its customers while also making a positive impact on the world.

Meanwhile, in an interview with CNBC, Tim Cook revealed that Apple has been actively working on generative AI technology for several years. He emphasized that AI and machine learning are fundamental core technologies for the company, deeply integrated into every product they develop. Apple’s research efforts in AI, including generative AI, have been ongoing for some time.