Apple’s Pressing Challenge: Build Its Services Business
Apple Inc. has held out its fast-growing services unit as a bright spot in an outlook dimmed by soft demand for the iPhone.
But the services business faces challenges of its own.
Chief Executive Tim Cook last week underscored that business’s importance in his investor letter warning of slowing iPhone sales.
But Apple still relies on the iPhone for two-thirds of sales.
growth in services are threatened by a recent slowdown in App Store sales.
Apple is focused on consumers, whose tastes can change rapidly.
Its success hinges on driving sales of apps
Apple last week reclassified its quarterly results for last fiscal year because of new accounting standards.
Reclassified has shift some product revenue to its services business.
But Apple’s services are tied to the amount of iPhones and Macs in people’s hands.
growth in those devices has begun to slow.
But Apple’s services are tied to the amount of iPhones, iPads and Macs in people’s hands–and growth in those devices has begun to slow.
Apple said total active devices increased 8% last year to 1.4 billion.
a deceleration from the more than 15% compounded annual growth rate between 2015 and 2018.
The slowdown is pronounced in China, where iPhone demand has waned because of a weakening economy, rising smartphone competition
increasing popularity of WeChat, an all-in-one app from Tencent Holdings Ltd. for messaging, payments and more.
Meanwhile, Apple awaits a Supreme Court decision in a case that determines for its alleged monopoly on the App Store.
Should the justices decide the case has merit, Apple would face a challenge to its 30% cut of App Store sales.
Netflix plans to stop using Apple’s billing system for new customers.
icensing revenue–the largest driver of revenue growth last year–also is expected to slow.
Google pays Apple up to an estimated $9 billion to be the default search engine on Safari internet browsers.
but Google expects such acquisition costs to moderate after jumping last year.