The iPhone X doesn’t matter

The iPhone X, which may or may not have sold well.
The iPhone X, which may or may not have sold well.
Image: AP Photo/Marcio Jose Sanchez
We may earn a commission from links on this page.

Apple will announce first quarter earnings tomorrow for its fiscal year ending Sept. 30.  If Apple’s guidance from its last earnings report is to be believed, then this will likely be the company’s best quarter for revenue ever. The company said last November it expected to generate between $84 billion and $87 billion this quarter, which, even at the low end, would be much more than the $78.4 billion earned in its first quarter of 2017—Apple’s previous record.

Even if the end of 2017 turns out to be phenomenal for earnings, recent reports say that 2018 may be rocky for Apple. The company’s $1,000 flagship phone, the iPhone X, which was released in November, may not be as popular as analysts had expected. The Wall Street Journal reported Jan. 30 (paywall) that tepid demand will force Apple to cut iPhone X production in half in the next quarter. Customers are instead buying older, less expensive iPhone models, finding that the new features on the X aren’t worth the premium. (Quartz is inclined to agree.)

The outlook sent Apple’s stock price plummeting this week:

While demand for the X may be lower than expected, even if Apple misses its estimates by 10% (highly unlikely), it would still bring in over $75 billion, making one of its best quarters of all time.

Apple struggled to grow revenue in 2016 and into 2017, as critics and customers alike noticed Apple was stuck in a rut of releasing iterative, derivative products. The iPhone X was supposed to kick off what analysts had been calling a “supercycle” of new products and revenue gains, but it’s unclear if that’s happened.

We’ll have to wait for the earnings call to find out just how popular the X was, but here’s the thing: Whether the supercycle has come and gone or hasn’t actually happened yet (as some might argue), it doesn’t really matter that much. Apple will continue to sell products that resonate with millions of people each quarter, whether they’re massively innovative, or just nice updates.

Apple has also set itself up to make iPhone sales not matter as much. The iPhone, Apple’s cash cow is accounting for less and less of Apple’s total revenue, and its other products, including the Mac and accessories like the Apple Watch and AirPods, are helping fill the gap.

Regardless of whether it’s selling $1,000 iPhone Xs or $700 iPhone 7 Pluses, Apple’s Services business is what’s really pushing revenue. That’s the games, apps, movies, music, subscription services, cloud storage, and support services that customers are buying after they’ve purchased their iPhones, and that they continue to buy more and more of with each passing quarter. Apple’s rock-solid ecosystem, that we cannot seem to escape even when we want to, means that it’s become much less important for the company to knock a new product out of the park.

Still, analysts are expecting Apple to have sold more iPhones this holiday period than ever before. So even if they’re not all buying the most expensive option, they’re still buying very expensive telephones, and Apple will—shockingly—be in very fine shape, even if its stock plummets on whatever numbers it reports, and whatever guidance it offers for its second quarter. Some are already bracing for guidance that Apple won’t sell the 60 million iPhones analysts expect it to produce in the coming quarter.

One other sign of resilience worth keeping tabs on will be Apple’s geographic revenue diversity. Apple’s future health will depend more greatly on cracking developing markets like India and China, where it’s been marketing lower-cost devices for the last few years. Look to see whether revenue beyond the Americas and Europe are continuing to trend upwards.