BOrse Express – Apple's CEO indicates a significant change in the business model


The iPhone generally makes at least half of the revenue from Apple (WKN: 865985), and the smartphone has problems. In the last quarter, sales of the important segment were already declining again.

CEO Tim Cook tried to see this as positive during the fourth quarter results. "IPhone revenue in the September quarter was $ 33 billion," he said. "This 9% year-over-year decline is a significant improvement over the 15% decline in the first three quarters."

Yet, iPhone revenues accounted for more than half of Apple's $ 64 billion of Q4 revenue. The company grew 17% in the non-iPhone business, with service revenue up 18% and wearables up "well over 50%," Cook said during the conference call. This is positive news, but it is overshadowed by the decline in iPhone revenue. But even here Cook could have a plan.

Is an iPhone subscription coming?

Apple has so far offered subscription services only marginally, namely Apple Music Service and newer services like Apple News +, Apple Arcade and Apple TV +. That can change. After all, Cook did not reject the idea of ​​bundling an iPhone with other services when an analyst asked the question.

Toni Sacconaghi said during the conference call:

In terms of hardware as a service or as a bundle, if you will, today there are customers who essentially view hardware as a subscription because they have become accustomed to upgrades. So I think that in the future, we will see disproportionate growth in this regard. Therefore, we try to make it easier for people to get this kind of monthly finance.

This does not mean that you will be offered an iPhone subscription directly, providing consumers with the latest device for a monthly fee. Cook, however, has made it clear that he sees the demand and that some steps are being taken.

We are aware that there are many users who want a kind of recurring payment like this and getting new products on a kind of standard basis, and we strive to make this easier than it may be today.

It is not clear how exactly an iPhone subscription would work and what will be included in the package. However, Cook has acknowledged that customers want a subscription plan (without using those words) and that Apple can handle it.

That's good news for the investors

Some consumers create a kind of virtual iPhone subscription by exchanging their mobile phone every year. This is an unpredictable revenue for the company because it depends on consumers deciding whether the new model pays off, because an upgrade often requires a lump sum payment for part of the new phone (the rest is funded).

If Apple is able to offer a subscription package that can help keep costs affordable for consumers while securing the latest phone (along with services like Apple Music and Apple TV +), that should appeal to consumers. Many people already have some kind of endless iPhone payment because they buy a new one at least every two years. A subscription will not change that, but it will cut costs and eliminate the annual decision.

Investors generally like subscription income. This model is predictable and makes issues recurring. Offering an iPhone subscription package would therefore strengthen customer loyalty and make sales more predictable. This will also have the secondary effect of increasing revenue for other Apple services such as Apple TV + and Apple Music (albeit probably at reduced prices as part of the package).

Consumers want this type of subscription because it gives them security. Apple should want it for the same reason. Cook has not committed to this big change in the business model, but he has opened the door for it, and investors should be happy about the opportunity.

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This article was written by Daniel B. Kline in English and published on 03.11.2019 on It has been translated so that our German readers can participate in the discussion.

The Motley Fool owns and recommends Apple. The Motley Fool has the following options: Short January 2020 $ 155 calls on Apple and Long January 2020 $ 150 calls on Apple and recommends the following options: Long January 2020 $ 150 calls on Apple and Short January 2020 $ 155 calls on Apple.

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