Apple (AAPL, Financial) took the market by surprise in a big way as it reported solid third-quarter earnings numbers, beating analysts' expectations by a wide margin. The world’s No. 1 premium smartphone maker reported sales growth in all regions except for China, recording 41 million iPhone units sold during the quarter.
Though in terms of absolute percentages the growth of iPhone sales was only higher by two percentage points compared to what it sold last year, it will be a huge morale booster for the company, which is expected to launch iPhone 8 during the third calendar quarter. Smartphone sales around the world are still growing, but most of that growth is coming from emerging markets, where Apple’s premium-priced products only have a minority share of the market.
The effect can be clearly seen in the way Apple has been losing global market share to rivals in the recent past. During the first quarter global smartphone sales grew by 9.1% to hit 380 million units, but Apple’s market share slipped from 14.8% in first-quarter 2016 to 13.7% in first-quarter 2017. And the room for Apple to increase sales from the current position is a lot less than the room it had five or 10 years ago.
Apple iPhone sales dropped in 2016, after hitting a peak of 231 million iPhones in 2015. In the first nine months of the current fiscal it has sold 170 million iPhones, a mere 2% more than the 166 million phones sold in the first nine months of 2016.
Unless Apple is able to post tremendous numbers during the fourth quarter of the current fiscal, its record-breaking spree that peaked in 2015 will likely be its all-time peak.
Though 2017 is now turning out to be a bit better than 2016 in terms of iPhone sales volume, Apple is still a few miles away from breaking its own sales record. But the steady growth of Apple’s services division should be able to bring in the revenue growth factor for Apple If iPhone sales numbers start to move sideways, which is more likely to happen than Apple increasing its smartphone sales by couple of percentage points every year in the next 10 years.
Services revenue has now reached $7.2 billion, a growth of 22% compared to last year, and if the current growth rate continues, Apple should easily cross $10 billion in annual revenue from services by next year, providing a clear path for overall revenues to slowly but steadily expand in the future.
For now, though, all eyes will be on when iPhone 8 is released and how much Apple is able to generate in sales in the fourth quarter of the current fiscal because that figure and its growth over the previous year is what will keep the stock moving in the short term.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
