Back when Apple and Microsoft were a thing, one could argue whether Apple was a software company or a hardware company. Once Apple dropped the price tag from OS X and most applications for Mac, iPhone, and iPad, I thought it was clear that Apple is a hardware company.
At least, that’s the argument found in Barron’s Next with “Apple: It’s No Longer About The iPhone.”
Rubbish. Pure nonsense. Contrarian journalism without proper analysis or market understanding.
The argument is simple. Apple’s Services business is growing faster than any other company product.
The opportunity from things like the App Store, iTunes, Apple Care, and iCloud are still under appreciated by investors… That means as Apple’s service revenue grows, the company’s profit margin heads higher. Meanwhile, services provide a stable stream of revenue, unlike the more cyclical nature of iPhones and iPads, which see sales bumps timed to once-yearly upgrades.
Yep, Services is one of Apple’s bright spots in an otherwise gloomy perspective. Or, so the story goes. Here’s the point that seems to be missed by those who analyze Apple’s financials. Services is nothing without Apple’s hardware sales.
That same Barron’s article featured a sidebar with three headlines to other Barron’s articles about Apple.
Apple: Maybe It’s Time To Focus Less On The iPhone – Why? Because iPhone brings in nearly 70-percent of the company’s revenue and profits. Apple is the iPhone company. Apple needs to diversify itself, is the argument. Diversify? What about Mac, iPad, Services, Watch, and the like? Each is a Fortune 500 company on its own. That’s diversification.
Apple: Sales of iPhone, iPad and Mac All Shrink But Better Signs Ahead – That was a guesstimate argument against Apple’s next quarter which proved Barron’s riffraff writers have no ability to divine the future with any accuracy, as the iPhone sold in record numbers (again) as did the Mac (again).
Facts don’t matter. Analysis takes too long. But any headline in a business publication that uses the word “Apple” gets more hits.
Here’s one I like:
Here Comes The iPhone ‘Supercycle’ – this is all about how Apple’s revenue and profits will explode thanks to the iPhone 7s or iPhone 8 or iPhone Edition, or whatever new iPhone comes out this year. Why? 10th anniversary. Something must be up at Apple. Besides, all those iPhone 6 and iPhone 6s and iPhone SE users must be tired of their iPhones and want and need and are willing to pay $1,000 for a new iPhone with fancy new hardware (OLED display, faster CPU, wireless charging, micro-bezels, et al).
And we’re back to hardware.
For Apple, it’s all about hardware. Most of the company’s software is free. Services exist only because Apple sells hardware. Ipso facto and Voila! Apple is a hardware company and to think or say anything to the contrary is foolish.