Apple Isn’t Just About the iPhone Anymore

Fans of Apple (NSDQ: AAPL) look forward to September every year because that’s usually when Apple announces its new product lineup. This year is no exception.

Last week Apple announced the next iteration of its flagship product, the iPhone 13. As the second 5G iPhone, the improvements of the iPhone 13 over the iPhone 12 are incremental, largely in the form of a better camera, a faster processor, and a longer-lasting battery life.

The iPhone will come in four versions, ranging from the mini to the Pro Max, with the same starting price points as the iPhone 12 versions launched last year.

5G iPhone Rejuvenated Sales

The iPhone 12 was the first 5G phone Apple had to offer. The major upgrade rejuvenated Apple’s iPhone sales, which had been falling in recent years. iPhone sales through the first three quarters of fiscal year 2021 (October 2020 through June 2021) are up 37% year over year.

Given the minor upgrades, iPhone 13 likely won’t contribute growth nearly as high, but it doesn’t have to. Apple is no longer as heavily reliant on the iPhone for growth. In fact, even though iPhone sales had been falling (before the iPhone 12 introduction), its overall revenue grew. This is because its newer businesses have more than picked up the slack.

Services, a high-margin business, has become Apple’s second largest reported segment, thanks to the Apple Store. Wearables, Home & Accessories has become number three largely due to the popularity of the Apple Watch, which has a 40% market share of the smartwatch market. The smaller product categories, the iPad (tablets) and the Mac (desktop computers), are also growing.

While the iPhone may have drawn customers to Apple products, the company’s unique iOS ecosystem is perhaps the biggest reason for the company’s success and customer loyalty. The ecosystem has been facetiously described as a black hole in that once captured, a customer never leaves.

The Secret Sauce

Apple makes devices and software designed to work seamlessly and sync easily with each other, but not with anything not compatible with Apple’s exclusive operating system, the iOS. This means that once they begin using an iPhone, if they want to connect it to other devices, customers have no choice but to use other Apple products and services.

Apple’s offerings are high-quality, no doubt, so customer satisfaction is high. Moreover, the amounts of data generated (e.g. photos, videos, messages, etc.) over the user’s time with Apple are all walled into Apple’s iOS system, easily accessible through the iCloud through multiple Apple devices. There’s quite a bit of convenience to staying with iOS and inconvenience to leaving. For example, if you already own an iPhone, if you choose to buy a smartwatch, you are likely to buy the Apple Watch just as you are likely to buy another iPhone for your next phone.

As 5G proliferates, we see excellent opportunity for the iPhone…and by extension, Apple’s ecosystem. We think the iPhone will serve as the hub and control center, allowing the user to control connected devices at the palm of his/her hand.

Apple’s success has been the rising water that lifted many boats. Many suppliers, partners, and game and app developers have all thrived because of their relationships with the company.

With many billions of dollars in free cash flow generated per year, Apple has tremendous amounts of capital to invest for growth. One ambitious project it’s working on is the Apple Car.

The Next Big Thing?

Apple is trying to keep the details under wraps, but the goal is to develop a self-driving vehicle with many features. Apple self-driving cars under testing have been seen on the road. The company is believed to be developing charging infrastructure right now and working on many different functionalities such as VR (virtual reality) and AR (augmented reality). Knowing Apple’s reputation for high quality, if it is indeed able to develop a self-driving vehicle, we can bet that it will be a state-of-the-art product with features that consumers didn’t even know they wanted.

The potential launch date is speculated to be perhaps as soon as within the next three to four years. If Apple really can successfully develop an EV with a unique Apple spin, it promises to be a game changer, not only for Apple but for the companies who can get a piece of the pie.

As I’ve just explained, Apple is synonymous with technological disruption. Apple could disrupt the world yet again, with four simple words: “Introducing…The Apple Car.”

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