Apple (NASDAQ:AAPL) has been able to boost its revenue from services, including advertising, payments, video streaming and cloud storage, in a long-standing strategy to offset slumping demand for smartphones.
But the advance in services was not enough to cushion the global retreat in sales of smartphones, which collaborated with the drop in the company’s revenue in its fiscal third quarter.
The company reported net income of US$19.8 billion in the third fiscal quarter of 2023, practically unchanged from the US$19.4 billion reported in the same period of the previous year. Diluted earnings per share were $1.26, up from $1.20 a year to 2022.
The company’s net revenue totaled US$ 81.7 billion in the quarter ended on July 1st, down 1.4% on an annual basis. Revenue in the Americas reached $35.8 billion, down 5.5% year-on-year. In Europe, the company’s second largest market, Apple earned US$ 20.20 billion, up 4.7%.
Revenue from iPhone sales totaled US$ 39.7 billion in the quarter ended July 1, a result 2.5% below that registered a year earlier. Apple smartphones contributed with 48.5% of its total revenue in the period.
In the service segment, which generated 25.9% of the company’s revenue, the result of US$ 21.2 billion represented an increase of 8% in the same period.
“Services, including advertising, are far more profitable than the physical goods that [Apple] has built its reputation on,” said Jeremy Goldman, senior director at consultancy Insider Intelligence.
Goldman points out that Apple continues to struggle with the slowdown in the smartphone market.
“Due to high prices, consumers expect a lot from these devices, and while Apple continues to offer high quality products, it is becoming increasingly difficult to convince customers to replace their devices so frequently,” notes the expert.
The Insider Intelligence analyst warns that the absence of a clear vision for Apple’s next billionaire business raises questions about the long-term implications of the services-centric strategy.
“Some of the company’s most recent ventures, like Apple Card and Apple TV, were more a combination of factors than outright successes,” Goldman quotes.
“All eyes are now on any advertisements related [to the virtual and augmented reality glasses] Vision Pro or advertisements related to artificial intelligence, with which the company can push the limits of its business model even further”, notes the expert .