Apple’s iconic iPhone has experienced a revenue decline for the third consecutive quarter, but the drop in hardware sales has been balanced out by accelerating growth in the company’s services division.
CNBC reports that Apple’s iPhone revenue fell for the third quarter in a row dropping two percent in the period ending in June. Despite the ongoing slump in hardware sales, Apple’s services business, including subscriptions, warranties, licensing fees, and Apple Pay, has emerged as its most profitable arm, showing over eight percent growth in the June quarter.
The services division’s growth was “better than we expected,” Apple CEO Tim Cook told investors, highlighting the importance of the sector, which has stronger margins and more predictable revenue streams. The gross margin for services in the June quarter was 70.5 percent, almost double the 35.4 percent margin for all of Apple’s hardware products.
While the decline in iPhone sales continues, the company’s services business is poised for further expansion. CFO Luca Maestri emphasized the growth potential, stating, “It goes from the fact that our install base continues to grow, so we got a larger pool of customers, to the fact that our customers are more engaged, as we have more transacting accounts and paid accounts on the ecosystem.”
The services division’s robust performance is not only compensating for the hardware softness but also setting new records. “We set an all-time revenue record for total services and in a number of categories including video, AppleCare, cloud, and payment services,” Cook said.
Apple’s services business includes a variety of products such as advertising, AppleCare, cloud services, digital content like Apple Music and Apple TV+, and payment services like Apple Card and Apple Pay. The company claims to have more than one billion paid subscribers, a figure that has doubled in three years, and is up by 150 million in the last year.
In addition to the services growth, Apple’s deal with Major League Soccer to broadcast its games on Apple TV has been beating internal expectations for subscribers. Cook attributed part of this success to soccer star Lionel Messi, saying, “The fact that Messi went to Inter Miami helped us out there a bit.”
Despite the positive outlook for the services division, the continued decline in iPhone sales, along with potential double-digit percentage falls in iPad and Mac sales, has raised concerns. The company expects iPhone sales to perform better than the two percent decline posted in the latest quarter but acknowledges that the hardware struggles are real.
The shift in focus from hardware to services marks a significant transition for Apple, reflecting changes in consumer behavior and market demands. With analysts expecting the services business to post almost $60 billion in total sales in fiscal 2023, the future seems promising, even as iPhone sales continue to falter.
Apple’s shares have fallen more than three percent in intraday trading on Friday.