Apple has released their Q1 2015 earnings, and it blew away Apple’s own guidance, analysts expectations, and every other company. In fact, it was the most profitable quarter that any company has ever had with $18 billion in profit. The largest contributor was the iPhone with 74.5 million sold thanks to the release of the new iPhone 6/Plus. The iPhone was responsible for 69% of Apple’s earnings, leaving just 31% generated by Pads, Macs, iTunes Store, iPods, and Apple TV.
70% for any one product is putting a lot of eggs in one basket, and it means that if the iPhone can’t keep up its pace, the entire company will fall back along with it. Apple’s success, and fortunes are almost entirely dependent upon the iPhone. It looks great when you introduce two new iPhones at all new form factors, but what about the alternating years. The iPhone 6S, and 6S Plus are likely to launch this year making you wonder if they will do enough to generate upgrades, switches, or first time smartphone buyers. The S line will likely include just a processor upgrade, new camera, and a special feature along the lines of Siri for the 4S, and Touch ID for the 5S.
With so much of Apple’s bottom line riding on the iPhone, they may have to provide a bigger update this year. With that said, there’s no low hanging fruits of obvious upgrades to smartphones. Apple’s investment in Sapphire went awry when their manufacturing partner filed for bankruptcy. The iPhone is running up against the limits of what can be done on the hardware front, and most software enhancements will be available on the current models. Apple can savor the moment, but this time next year may tell a different story with less potential new features of the next iPhones generating less sales, which would be a major blow to the entirety of Apple.
The iPhone has gained importance to Apple as the iPad has taken a step back with numerous consecutive quarters showing shrinking sales compared to the year ago quarters. It seems Apple’s potential solution is a 12” iPad Pro that offers dual screen multi-tasking, and a stylus for $999, which doesn’t sound like a savior. Macs are showing recent growth, but at small percentages, and low overall numbers. The iTunes Store, and all digital sales, have reached billions in gross, but aren’t likely to reach a much higher stratosphere. Finally, the iPods, and Apple TV are left on the back burner, while the Apple Watch has to prove itself amongst competition, and more importantly prove its practicality.
Apple is mainly a technology company above all else, but everything they’re currently doing is driven by the iPhone’s success. They can’t afford to have a dud iPhone, as they only release one new model each year, and it has to do great for Apple to do great. They have built up such a strong base that one bad year won’t do them in as a company, but it will definitely be a big blow that none of their other products can make up for. Relying so much on one product hurts their ability to sustain a miss in any given year. On the flip side, it gives them a singular focus to make the best iPhone they can each, and every year. With Apple so reliant on the iPhone, they need to design all of their other products based on the iPhone, which offers more practicality to iPhone owners.
Apple is officially a phone maker above all else, which can be risky for them, but there’s better potential products for us.