When the subheading for Apple’s quarterly-financials announcement is ‘Services Revenue Grows 24% to All-Time Quarterly Record of $6.3 Billion’, you don’t have to be a financial whizz to realise that there is bad news to follow on the company’s overall business.
So it proved last night, when Apple’s fiscal Q4 (the third quarter of 2016) yielded revenues of $46.9bn and net income of $9bn – down 8.9% and 18.9% respectively year-on-year.
Declining hardware sales are the key here: Apple sold 45.5m iPhones last quarter (down 5.2%); 9.3m iPads (down 6%); 4.9m Macs (down 14%) and while Apple doesn’t break out figures for its Apple Watch smartwatch, research firm IDC claimed earlier this week that shipments of that were down 71.6% year-on-year.
Apple’s key financial quarter remains its fiscal Q1 (i.e. the three months leading up to Christmas) but the annual declines still mean the phrase ‘peak Apple’ is appearing in media coverage more often.
That said, the company’s decision to focus on its services growth is just as relevant for Music Ally readers. Not only are revenues from iTunes, Apple Music, the App Store and iCloud outpacing analyst forecasts; at $6.3bn the ‘services’ category is now Apple’s second biggest behind the iPhone.
“App Store revenue continued to skyrocket, while Music revenue grew by 22% thanks to the growing popularity of Apple Music,” CEO Tim Cook told analysts last night – a useful stat, in the light of our recent analysis of how Apple Music’s growth and iTunes’ decline balance out.
“We have almost doubled the size of our Services revenue in the last four years, and as we’ve said before, we expect it to be the size of a Fortune 100 company in fiscal 2017,” said Cook.
“The people that are actually taking advantage of our services over time tend spend more and more on our services,” added CFO Luca Maestri, in a message stressing the stability provided by Apple’s services business.
Our industry has fretted about music declining in strategic importance for Apple over the last decade, as it became clearer that while music sold iPods, it was apps that sold iPhones. Yet one interpretation of Apple’s latest financials is that music’s importance – admittedly as part of that wider ‘services’ ecosystem – still matters for the company’s future health, not just for its historic cultural identity.