It pays to trust in Apple (US:AAPL). The world’s largest company has rebutted doubts regarding its ability to sell more smartphones by reporting double-digit growth in iPhone sales in the second quarter of the 2018 financial year. Concerns surfaced at the end of last year when suppliers reported Apple wasn’t ordering as many components as expected. The shares opened trading up 4 per cent the day after the figures' release.
But that share price movement was likely to be based on relief rather than excitement. The global smartphone market appears to be approaching saturation, which is why iPhone sales volumes only rose 3 per cent in the second quarter. Revenue growth was instead driven by the $73 (£61) increase in the average price of the iPhone. Driving growth via price increases rather than volume is not going to be easy to maintain, which may be why Bloomberg consensus analyst forecasts for the third quarter have fallen to $52.5bn, from $53.1bn in January.
Fortunately, Apple has reduced its reliance on the iPhone by increasing the strength of its services business. The App Store, iCloud, Apple Music and other add-ons contributed 15 per cent of the top line in the second quarter, compared with 13 per cent last year, while iPhone sales have fallen from 63 per cent to 62 per cent of total revenues.
There is also a growing sense that Apple is holding the iPhone in less high esteem. Recent acquisitions (including Texture and Shazam) focus on services that can collect data, rather than components that can enhance products. That is good news because future growth at Apple is far more likely to come from data and services than it is from smartphones – a market that appears to be rapidly reaching full capacity.
