Apple: Wearables is now the size of a Fortune 150 company, and Tim Cook dodges a question about the future

While it's easy to focus on hardware, Apple makes billions from selling services.
Written by Adrian Kingsley-Hughes, Senior Contributing Editor

Apple had a good quarter. A very good quarter. And while the bulk of the company's revenue comes from the iPhone, it's clear that Apple is using its massive install base to generate good chunks of revenue from services.

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The big news is, as we have come to expect, the iPhone. Apple no longer supplies data on units shipped, and instead wants us to focus on revenue. While many of us are still old enough to remember how Apple used to boast about the number of handsets sold, as sales have plateaued, the company wants us to focus on the money this one line brings in.

And why not. Who cares if sales are falling, when the cheapest iPhone in Apple's line up is the iPhone 8, which has a robust starting price of $449, with the monster iPhone 11 Pro Max at the other end, topping out at $1,449.

Hands up -- who thought AirPods would be an overpriced fad? What about the Apple Watch? Well, according to yesterday's earnings call, its wearables line "is now the size of a Fortune 150 company," with demand for the earbuds, particularly the AirPods Pro, being described as "phenomenal."

Yes, "phenomenal" demand for earbuds that cost a sobering $249.

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While both the Apple Watch and the AirPods are standalone products, both rely on the massive iPhone ecosystem for their existence, and a clear example of Apple leveraging this massive iPhone user base to sell accessories.

Apple is also doing the same with services.

Q1 services revenue hit a stratospheric $12.7 billion, an all-time record, and an increase of  17% compared to the year-ago quarter. That's an outstanding leap, and again down to the company's massive install base of iPhones, iPads, Apple TVs, Apple Watches, and last, and possibly least, Macs.

And while this is small compared to the $56 billion that the iPhone pulled in over that time, it's quite a significant amount.

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Almost everything you do with an Apple-branded device -- from buying apps from the App Store or downloading a movie from iTunes, to paying for your groceries using Apple Pay or buying an AppleCare warranty -- generates cash for Apple.

And there's also all that stuff in the background. For example, Google is paying Apple billions every year to be the default search engine in iOS.

But, here's a question to ponder -- is that Apple hardware ecosystem growing? Let's delve into the earnings call.

Tim Cook: "Our active installed base of devices has now surpassed 1.5 billion, up over 100 million in the last 12 months alone, reaching a new all-time high for each of our main product categories and geographic segments."

This is a key number here -- 100 million new devices -- and one of the few numbers we are given. And it's big. But bear in mind that along with iPhones and iPads and Macs, this also includes things like AirPods and Apple Watches.

Tim Cook: "…high level of customer satisfaction and loyalty for both products drove the active installed base of both Mac and iPad to new records in all geographic segments."

So, these segments are also growing, but there's no number attached here.

Luca Maestri: "Our active installed base of iPhones has reached an all-time high and is growing in each of our geographic segments."

Confirmation that the iPhone install base is growing, but an absence of numbers.

Luca Maestri: "And the active installed base of both Mac and iPad reached a new all-time high."

A repeat of what Cook said, but again, no solid ground of numbers.

So, we know that Apple added 100 million devices to the ecosystem, but Apple is cagey about what those devices are, and Apple's omission of this data is no accident, and might suggest that in a broader sense that growth is not as strong in some of these areas as the company might want.

Or perhaps Apple doesn't want to give the competition too much information.

What is clear, though, is that Apple is successfully leveraging that hardware ecosystem to pull in more and more dollars from users, either directly in the form of subscriptions and purchases, or indirectly through licensing and transaction charges.

Oh, and that question that Cook dodged was on the subject of 5G. When asked how big of a demand driver he thought 5G capability would be, he swerved:

"Sorry. We don't comment on future products. And so, I will try to sidestep a bit. With respect to 5G, I think it's -- we're in the early innings of its deployment on a global basis. We obviously couldn't be prouder of our lineup and are very excited about our pipeline as well and wouldn't trade our position for anybody."

Anyone who follows Apple will know that this was quite a predictable reply.

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