The iPhone Era Is Coming to an End

Tim Cook Apple
(Image credit: Justin Sullivan/Getty Images)

If there was any doubt that the era of Apple as the iPhone Company was at an end, the ended when Apple announced its fiscal third quarter results today (July 30).

The iPhone brought in a little less than $26 billion in sales for the three months ended June 29. That's a drop of 12% from the same quarter last year. More significantly, with Apple reporting $53.8 billion in total sales for the quarter, it means that the iPhone accounted for less than 50% of Apple's quarterly revenue. It's the first time that's happened in nearly seven years. 

(Image credit: Six Colors)


But rather than set off alarm bells, Apple seemed quite pleased with its quarterly performance, which set a record for revenue during the June quarter. (Though only barely — sales were up a mere 1% from the $53.3 billion Apple tallied last year.) iPhone growth may be slowing down, but Apple saw sales pick up across its other segments. Apple's stock was also up about 4% in after-hours trading.

Services, wearables lead the way

The most significant growth continues to come from Apple's services, which jumped 13% for the quarter to account for nearly $11.5 billion of the company's sales. Luca Maestri, Apple's chief financial officer, said that Apple now has 420 million paid subscriptions across its services, with a goal of hitting 500 million by 2020. Maestri called those subscriptions "extremely diversified," covering everything from video to photos to entertainment.

Apple is also seeing a jump in the number of people using its Apple TV app, which got a redesign in May; viewership is up 40% in the app over last year.

Wearables, which covers both the Apple Watch and AirPods among other products, spiked by 48% to $5.5 billion — an "absolute blowout quarter," CEO Tim Cook told analyst during a conference call discussing Apple's results.

More established product lines also saw growth during the quarter. Mac sales rose 11% to $5.8 billion while the iPad ticked up 8% to $5.5 billion.

Cook seems confident that such growth can continue, using his call with analyst to recap a lot of the moves Apple made during the past three months, including previewing assorted operating system updates during June's Worldwide Developer Conference and ramping up new subscription services set to launch in the coming months. Apple Card, the company's credit card, debuts in August, while the Apple Arcade gaming service and Apple TV+ original programming arrives in the fall.

"These updates are the latest steps in a broader strategic effort to make the user experience across iOS, macOS, iPadOS, watchOS, and tvOS more effortless and more intuitive," Cook told analysts. "Apple is alone in offering this kind of value and ecosystem to its customers."

What about the iPhone 11?

Apple even managed to find a silver lining in its stalling iPhone sales, noting that the 12% drop in sales year-over-year wasn't as steep as what it experienced during the previous quarter.

Apple credited the ramp-up of sales promotions involving the iPhone, which include trade-ins for customers with older models and financing that lets customers spread out payments over time. "Those two things in aggregate led to [iPhone sales] growth in the month of June," Cook said. "We feel very good about the trajectory."

Apple told analysts to expect revenue between $61 and $64 billion for the quarter ending in September, which isn't that big a lead from the $62.9 billion in sales Apple reported during the 2018 quarter. That might lead some to conclude Apple isn't expecting a big boost from the iPhone 11 launch, which is expected to happen in September, but keep in mind the quarter would only cover a few weeks of sales at most.

The more significant iPhone sales would come during the next quarter, which includes the holiday shopping season; that quarter will also be a better reflection of how services like Apple Arcade and Apple TV+ perform after their fall launch.

"The balance of calendar 2019 will be an exciting period, with major launches on all of our platforms, new services and several new products," Cook said in a statement that accompanied Apple's earnings news.