When Apple reported it fiscal fourth quarter earnings on Wednesday, there was plenty for Wall Street to be excited about.
The company's burgeoning wearables, home, and accessories business had another impressive quarter, growing to $6.5 billion — making it almost as large as the company's Mac division. Services also grew by 18% to $12.5 billion, and together these two divisions helped Apple top analyst expectations.
It's almost enough to make you forget that revenue from the iPhone — the company's most profitable product — fell yet again, dropping by 9% to roughly $33 billion from about $36 billion in the same quarter one year ago. (That being said, it was still an improvement from the 15% decline in total iPhone revenue generated during the first three quarters of the year,compared to the same period in 2018).
Taken together, the news suggests that Apple's shift to placing more focus on services and wearables to offset falling iPhone sales has been a success so far. But it's also a reminder that although Apple is succeeding elsewhere, the iPhone is more important than ever before.
That's because the iPhone is Apple's most valuable asset in making these new products and services a hit, from the company's wildly popular AirPods and the Apple Watch to newer offerings like Apple Arcade and Apple TV+.
Of course, you don't necessarily need an iPhone to use every ancillary product or service Apple has launched, like AirPods — although the experience is drastically better if you do. That, of course, is by design.
And services like the Apple TV app, which houses the company's new entertainment subscription, can be found on the company's Mac computers too.
But it's the fact that Apple has 900 million smartphones in pockets around the world that gives Wall Street and industry watchers confidence in Apple's plan to expand into new industries like TV and gaming. The company is already using this advantage to promote these services by giving anyone who purchases a new iPhone, iPad, iPod touch, Mac, or Apple TV a free one-year subscription to Apple TV+.
If there's anything to be learned from Apple's latest earnings report, it's that it serves as yet another reminder that that Apple's next phase of growth isn't just about selling more iPhones. It may be the strongest evidence of that notion we've seen so far, which is presumably why the company stopped breaking out smartphone sales numbers in its earnings report last year.
Rather, it's about finding new ways to monetize current iPhone owners: by getting them to purchase AirPods or an Apple Watch, or convincing them to sign up for an Apple Arcade or Apple Music subscription.
The Apple Card plays a role in this too; although Apple doesn't collect any fees, those who sign up for an Apple Card are probably far less likely to go through the trouble of switching to Android. Apple is hoping that taken together, all of these products and services will be a strong enough value proposition to hook new users into its ecosystem and keep current Apple devotees locked in.
That will undoubtedly continue to be important as the worldwide smartphone industry has struggled to grow in recent quarters. The global smartphone market only recently began to show signs of recovery after experiencing declines, with Counterpoint Research reporting that the industry remained flat during the third quarter of 2019 and Strategy Analytics saying that shipments grew by 2% annually. Apple also expects iPhone revenue to return to growth next year, according to a report from Bloomberg.
Regardless of whether the industry continues to recover or how many iPhones Apple sells, it's clear that Apple is on a path to prove that it's not just the iPhone company. And it's latest earnings report suggests it's doing just that.