Why iPhone and Mac drove Apple’s growth, but iPad disappointed
Why Apple overcame currency headwinds to produce strong earnings (Part 14 of 14)
iPhone contributes 57% to Apple’s revenues
iPhone and Mac have become Apple’s (AAPL) growth products. Apple launched iPhone 6 and iPhone 6 Plus at a major event in September. According to Apple, the demand for iPhone 6 and iPhone Plus is greater than the supply. We should be able to see the real demand results in the fiscal 1Q15.
Mac was also outstanding in fiscal 4Q14. According the the International Data Corporation (or IDC), Mac’s unit sales increased 21% year-over-year (or YoY)—compared to the overall market contraction of 1.7%. However, iPad continued to disappoint. Its sales declined by 13% in the last quarter—compared to the same quarter last year.
As a result of these changes, iPhone’s revenue contribution for Apple increased to ~57%. Now, Mac contributes more than 13% to Apple’s revenues. iPad ‘s contribution declined to ~17%. Mac should become the second most valuable product for Apple, in terms of revenues, by next year.
iPhone and Mac are driving growth for Apple
Apple mentioned that the demand for iPhone 6 and iPhone 6 Plus is huge from first time buyers. There’s also demand from buyers that want to upgrade their iPhones. Management gave the example of the iPhone 5S and iPhone 4S models. Over 80% of the consumers bought iPhone 4S and half of the consumers bought iPhone 5S for the first time in China.
Apple needs the upgrade buyers and new buyers to boost its share in the smartphone market. Currently, Google (GOOGL) Android dominates the smartphone operating system market with a share of ~85%.
Apple is ranked fifth in the worldwide PC market. HP (HPQ) and Lenovo lead the market. The price cuts employed by Apple for iMac and MacBook Air during the last quarter helped the company gain share in this market.
iPad continues to disappoint with declining sales. However, Apple launched the upgraded iPad Air 2 and iPad Mini 3 a few days ago. These are minor updates. Apple need to do more to counter the threat of Android and Microsoft’s (MSFT) Surface tablets . Maybe Apple should launch a bigger iPad ?
How Apple Pay and Apple Watch will fare
Apple also introduced two important categories in the last quarter—Apple Pay and Apple Watch. Apple believes that Apple Pay will be an attractive feature that will help the company sell more devices. However, Apple Pay could attract partnerships from the likes of Paypal —after its split from eBay (EBAY).
Apple Watch is a completely new product launch. Apple Watch is Apple’s first product launch in four years. It launched the iPad in 2010. It remains to be seen whether or not Apple Watch is successful. It will start shipping early next year.
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