At a media event on Tuesday, Apple is expected to focus on new content and services alongside its new iPhone models. The company is anticipated to unveil three upgraded iPhones, including a successor to the more affordable iPhone XR, as it aims to maintain its position in the premium smartphone market where phones often cost around $1,000.
However, the spotlight will likely be shared between the new hardware and Apple’s growing emphasis on services, subscriptions, and online content. This strategic shift is a response to the slowing growth in the smartphone market. According to Creative Strategies analyst Carolina Milanesi, this event may showcase Apple’s new identity as a company where “services and hardware” are presented as a single, integrated product.
Diversifying Revenue Streams
Apple’s move towards services is an effort to reduce its reliance on iPhone sales. The company has already launched several initiatives in this area:
- Apple TV+: Apple is keen to launch its TV+ streaming service ahead of Disney’s rival service debuting in November.
- Apple Arcade: A new game subscription service is planned for launch by the end of the year.
- Other Services: Apple has also introduced a credit card and continues to see strong growth from services like Apple Pay and Apple Music.
This strategy appears to be yielding results. In the April-June period, while iPhone revenues fell by nearly 12%, Apple’s overall revenue still grew by a modest 1% to $53.8 billion, thanks to strong performance from digital content, services, wearables, and accessories like the Apple Watch and AirPods. Upgrades to some of these accessories may also be announced at the event.
Market Challenges and Competition
Despite the push into services, some analysts are cautious. Richard Windsor of Radio Free Mobile suggests that while Apple is “coasting on the iPhone because of its strong quality,” significant growth from either hardware or services is unlikely in the short term. He notes that it will take years for services revenue to become large enough to significantly impact the company’s overall performance.
Apple continues to face intense competition in the smartphone market, where its market share is under 12%. Competitors are innovating in new areas like 5G devices and folding smartphones. Meanwhile, Apple is expected to release its first 5G-enabled iPhones next year, where its deeper understanding of the market may give it an advantage.
The China “Wild Card”
China remains a crucial but challenging market for Apple, accounting for about 17% of its total sales.
- Upgrade Potential: Analyst Dan Ives of Wedbush Securities believes the expected “trifecta of iPhone 11s” will help Apple retain its user base. He estimates that about a third of the 900 million iPhone users worldwide are in an “upgrade window,” suggesting strong sales potential.
- Geopolitical Tensions: The US-China trade war has made it harder for Apple to compete in the Chinese market, where local competitor Huawei has gained ground at Apple’s expense. According to analyst Avi Greengart, Apple’s success hinges on convincing Chinese consumers to continue seeing the iPhone as a “preferred premium brand at a tricky geopolitical moment”.
