Abu Dhabi, UAESunday 9 August 2020

Quicktake: why Apple needs to focus more on services like video streaming

California-based company's revenue from services grew 13 per cent in the third quarter to June

IIF estimates show that for one percentage point of lower Chinese growth, demand for oil by China weakens by 300,000 bpd. Bloomberg
IIF estimates show that for one percentage point of lower Chinese growth, demand for oil by China weakens by 300,000 bpd. Bloomberg

Apple is losing ground in one of its most famous offerings: the iPhone.

The consumer tech giant's net profit dropped 13 per cent year-on-year to Dh36.88 billion in the third quarter to June. However, its services business was up 13 per cent.

The mixed results show a new path forward for the Cupertino, California-based company - one more reliant on services such as selling data storage and content streaming on a subscription basis, instead of one-off sales of its famed devices.

Why did Apple report a dip in earnings?

“One of the key reasons behind the decline is the fall in iPhone shipments,” Tarun Pathak, an associate director with Hong Kong-headquartered research firm Counterpoint, told The National.

Weaker demand for iPhones, which earlier contributed more than 60 per cent to the company’s revenues, was hinted at by Apple during an earnings call in November last year when it announced it would stop disclosing the number of units sold for the flagship device. In the third quarter of this year, for the first time since 2012, Apple generated less than half of its total quarterly revenue from sales of the iPhone.

Will new launches boost Apple's profit in the next quarter?

With no significant changes in design, Apple is expected to launch three new iPhones in September. There will be two Organic Light Emitting Diode (OLED) models (XS and XS Max successors) and one LED model (XR successor). Beside those, there will be the Apple Watch Series 5, featuring a new ceramic casing design and a micro-LED display

In OLED, each pixel provides its own illumination resulting in higher quality displays.

However, new launches will not influence the results of the next quarter as a huge chunk of earnings from sales will carry over into the first quarter of next year.

Is Apple entering new industries or market segments?

Apple has already started rolling out its on-demand streaming service, a subscription gaming service and its own credit card.

“Apple may also use its music platform to steal an edge in the podcast market, which is regarded as a major untapped source of revenue,” Matthew Kendall, chief telecoms analyst at The Economist Intelligence Unit, told The National..

“However, wearables was the fastest area of growth … so we can expect some upgrades to its existing portfolio, as well as building on capabilities in areas such as health.”

Is Apple changing strategy amid the US-China trade war?

Apple is already considering moving as much as a third of its manufacturing out of China, but industry experts say this should not be a decision taken in haste.

“Apple will play a waiting game to see how the trade war develops,” said Mr Kendall

While shifting production to other countries is feasible, Apple has a huge presence in Chinese tech manufacturing, characterised by abundant and skilled labour and strong access to raw materials.

“Moving elsewhere would be both a time-consuming and resource-intensive task,” added Mr Kendall.

Updated: July 31, 2019 06:54 PM

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