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Apple Posts Strong Earnings, But Finding New Revenue Streams Remains Crucial

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The most critical component of Apple Inc’s 6% rise in quarterly revenues was the 28% increase in sales from Greater China. China was the biggest driver of iPhone sales growth for the quarter, helping the company reach 35.2 million units shipped globally. However, the company continues to see weakness in iPad sales, which totalled 13.3 million units. Sales of both iPhones and iPads are expected to be adversely effected as competitive pressure continues to mount and, as growth in smartphones is slowing, products in the pipeline become ever more important for the company’s prospects.

Global retail sales of iOS devices

Source: Euromonitor International


Bread and Butter

The iPhone remains Apple’s most important product and this makes the upcoming product refresh a highly anticipated event. There is strong evidence to suggest that the company will release a wider product portfolio than it has in the past; one that will include a larger 5.0-5.5” iPhone variant in addition to a device similar in size to the current generation. A wider product portfolio will depress margins, but, at the same time, the expanded product portfolio would continue to drive volume sales growth, even as overall smartphone demand slows.

iPhone Sales by Region

Source: Euromonitor International


Push into Enterprise

Shoring up the iPhone line-up will keep the company growing in smartphones over the short term, but consumer preferences in smartphones are notoriously finicky, making longer-term prospects far more uncertain. This makes slowing iPad sales a real source of concern for Apple Inc. To counteract this the company may try to incorporate more powerful models into its tablet line-up to compete with laptop-tablet hybrids that are starting to gain popularity in 2014. This would be in line with the company’s longer-term strategy of driving corporate sales of iPads, a goal the company hopes to accomplish in partnership with IBM Corp. Tablet adoption rates have been significantly slower in the business channel compared to their rapid gains in retail, but, by 2018, we expect tablet sales to businesses to reach almost 45 million units globally.

Wearable Electronics

Aside from the expanded iPhone product portfolio, a line of wearable electronics products is the most highly anticipated upcoming announcement from Apple Inc, slated for the last quarter of 2014. This is a product many of the early entrants struggled with, making it rather uncertain whether Apple Inc would release a wearable product in 2014. To have mass appeal wearable electronics will need flexible components and an OS heavily reliant on contextual computing, both of which are not yet consumer-ready technologies. So, even if Apple Inc were to launch a wearable device, its impact on overall revenues will be small in 2014 as wearable electronics remain a longer-term prospect.

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