'iPhones Don't Matter Anymore' [UPDATED]

JUST IN: iPhone unit sales, Apple revenue, profits, operating margins all up slightly from same quarter previous year.

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AAPL shares have tanked in recent weeks as investors fear that the iPhone’s big growth days may be behind it. Supply chain checks have proven to be a notoriously ineffective method of predicting iPhone sales, but Wall Street laps that tainted water up regardless.

We won’t know whether we’ve reached Peak iPhone until this afternoon’s earnings call — and maybe not even then. Interim models like the current 6S are inherently less exciting than the biennial total-refresh models, like the iPhone 7 expected to debut this fall. So unless sales tanked last quarter, don’t read too much into today’s sales figures. The time to panic is if Apple reports a decline this time next year.

That brings us to a Computerworld piece by “Appleholic” Jonny Evans, who says that the future does not belong to the iPhone:

This is a transition. Keep that in mind when Apple does or doesn’t announce unexpectedly healthy iPhone sales numbers later on today. We are moving away from the traditional connected device (the phone) toward a plethora of connected devices, in different forms.
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The lemmings don’t get that iPhones don’t matter any more. iPhones are going to be trucks. Just like PCs — they’ll still be around, but the connected intelligence they provide will disappear into the background of our evolving existence within connected environments.

That’s the picture within which we should frame Apple news across the next few years. It is also why the company and its competitors will begin to explore new industries. And that future seems to me a whole lot more interesting than number-crunching AAPL stock prices, but each to their own.

When the iPhone was revealed in 2007, iPod sales (remember those?) accounted for a stunning two-thirds of Apple’s revenue — just like the iPhone does today. Nine years later iPod represents a small fraction of Apple’s sales, and the entire music player category is so neglected that product updates come every two or three years, if that. The reason? Apple gave away a free iPod built into each and every iPhone. They cannibalized their own profit-leading product to create a new, and much bigger profit-leading product.

So the question for Apple isn’t whether they can keep iPhone growth on the same stellar trajectory forever — they can’t. The question is whether Apple can pull off the same trick of cannibalizing their own profit leader — before somebody else does.

Jukebox software used to be something people paid good money for, before Apple started giving away iTunes to help sell Macs (and later, to help sell iPods). MP3 players used to be something people paid good money for, until Apple (and then Android) demoted them to a mere smartphone app. Currently people pay good money for smartphones — but someday, possibly sooner than most people think — some new product or service will suck the profits out of smartphones.

Longterm AAPL investors don’t need to worry about a rocky quarter or three for iPhone sales, so long as Apple maintains healthy profit margins on the phones they do sell. The time to worry is when the profits start running out of iPhone, and into some new product or service which doesn’t wear the Apple logo.