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  • Writer's pictureSean D. Emory


Yesterday Apple reported and the numbers themselves were robust. Services is now generating $10B in revenue for a quarter and expected to be a $50B revenue run rate business by 2020. Here's our internal dashboard.

Removal of UnitsDuring the earnings call Luca the CFO mentioned that they would no longer provide investors unit totals for their lineup of products. While at first glance this seems like two things.

1. First, it provides less info to investors which makes it harder to see how hardware sales are performing. This is important because hardware sales are what drives service revenue. The more devices in circulation, the bigger the network for services.

2. The natural conclusion here is that maybe Apple is trying to hide that device sales are going to turn lower on a forward basis.

The Potential Rationale.

1. Service revenue is growing. Service revenue + other revenue now makes up 22% of sales and combined growing 21% year over year. So Apple is trying to shift the narrative to service over hardware. If investors believe this narrative and Apple executes, then this is a positive for investors. I think investors will begin to view Apple as a service business if they can get services to 40-50% of revenue. We are a long way from that as it would imply $100B+ service business. Here's the revenue breakdown chart.

2. Units have not reflected the business. One way to think about the significance of units is comparing the revenue growth and unit growth of iPhones. We went ahead and took the quarter to quarter growth rate of trailing 12-month results to smooth out the business. The results highlight that managements rationale makes sense. Apple has sold 216 million to 218 million iPhones over a 12 month period for the last 6 quarters (chart 1). This is consumer staple like volatility in units. At the same time, revenue for the total business has been growing 4x the rate of units (chart 2).

3. They could be signaling product expansion. Apple wants to run the business on the ecosystem of devices and no longer as a single iPhone company. It has 5-8 iPhones on the market at one time, 3-5 iPads, various Mac lines, Watch, HomePod, etc. The move may signal Apple's intent to add new categories in the near to medium term. Today's move may be their way of managing future expectations today. There has been rumors of glasses, cars, more speakers, more watches, etc. All hypothetical, but you wouldn't want to break out each product category going forward.


Apple has always focused on the long term and it has been proven to be the right strategy. While removing information which investors have been accustomed to getting each quarter is risky in the short term, the truth is it is better for long term investors.

For the short sighted investors, here's the Apple chart, as it looks to open near the most recent low.

MarketSmith Chart #IBDpartner

MarketSmith chart can be found here

Disclaimer: This is not a recommendation for purchase or sale of any securities. Avory is a a shareholder of Apple, but this can change at anytime.



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