A million iPhones isn’t cool. You know what’s cool? A billion iPhones.
Other than perhaps McDonald’s, there are few companies in the world that have been able to produce products successful enough to sell over 1 billion units. At last count, Apple had sold about 950 million iPhones, and some are estimating that when Apple reports third quarter earnings tomorrow (July 26), CEO Tim Cook will announce that the company has sold its billionth iPhone since the line of smartphones went on sale just over nine years ago. Apple effectively changed the way that the world communicates with the iPhone; it now has sold about a third as many phones as there are people connected to the internet.
Although there’s almost no other product line in the history of technology gadgets that has sold so well, Wall Street likely will not be impressed.
iPhone sales are slowing
Last quarter was the first time that Apple sold fewer phones than the same quarter the year earlier. Analysts are expecting that Apple will again announce tomorrow that iPhone sales have not lived up to the same period as last year, even though this will be the first full quarter that its most recent phone, the rehashed iPhone SE, has been on sale.
The overwhelming majority of Apple’s revenue comes from the iPhone. That means that last quarter, Apple recorded a drop in year-on-year revenue for the first time in years. We may see falling sales for the second quarter in a row.
As is Apple’s revenue growth
Last quarter, the news of the stalling sales sent Apple’s stock price into a nosedive in after-hours trading, down over 8% on what it began the day, even though many had been expecting the news. Currently, Apple’s stock is worth about the same as at the end of the second quarter. But it’s been a rocky quarter, amid speculation that Apple will not be releasing an iPhone that’s categorically different than the last two models, and rumblings that it doesn’t seem to have many other major new products planned for the rest of the year.
Many analysts are setting their sights on 2017 as it’s rumored that Apple will be launching far more new products next year. That could mean a few more earnings calls with uninspiring sales news.
There are some minor bright spots, however.
Services are a (small) bright spot
Apple’s services—which likely include everything from Apple Care insurance, to songs and movies on iTunes, apps, and Apple Pay fees—now make up the second-largest part of Apple’s business. As the company shifts into an arguably more boring, or pragmatic, approach to its business, Apple is trying to lock people into its services. That enables the company to generate revenue on a regular basis, even when customers aren’t buying new phones.
While services probably won’t provide anywhere near the level of revenue that the iPhone has over the last decade, it’s worth examining whether service revenue continues its slow, steady rise—especially given the fact that the average iPhone consumer may be planning on changing their upgrade habits if Apple starts producing a wholly new iPhone every three years instead of two.
Other products may help out
It remains to be seen, however, if Apple’s newest product, the smaller 9.7-inch iPad Pro, managed to help the iPad unseat services as the company’s second-largest business. Even with quite positive reviews, analysts don’t expect it to have moved the needle particularly much this past quarter.
That leaves the Apple Watch. It’s unlikely that this will be the quarter that Apple breaks out the Watch as its own separate business—it lumps it in with products like its wifi routers, and its Beats Electronics headphones in a line called “Other products” on its earnings statements. Although Watch may have started the year with strong sales, they have apparently slumped as of late. Some estimates suggest that sales of Apple’s first entirely new product in five years—the first under Tim Cook’s leadership—have dropped off 55% this quarter.
All in all, it’s likely to be a rocky road for Apple’s investors over the next few quarters. But given the company’s absolutely massive cash pile, the massive amount of money it’s spending on research and development, the potential for a completely redesigned iPhone in 2017, and perhaps even an Apple Car in the future, the company’s future is still exceedingly bright, even if that’s not apparent on tomorrow’s call.
Meanwhile, for the record, when McDonald’s stopped counting the number of burgers sold in 1994, it had just sold its 100th billionth burger. That was up from 1 million 1955 when McDonald’s started counting (paywall). It took until 1963–eight years–to sell a billion hamburgers. And iPhones cost a fair bit more than the average McDonald’s hamburger.