From the iPhone to the App Store -- A Look at the Apple Inc. Product Mix
That quote was taken from Apple CEO Tim Cook during his interview with Charlie Rose. The products making up that $180 billion in sales are by no means equally distributed -- below is an overview of the five reported product categories.
It is all about the iPhoneThe smartphone market is the most critical to Apple's success. The iPhone generates the overwhelming majority of revenue, about $102 billion for fiscal 2014 or just over 55% of net sales. That is up slightly from the previous year when the iPhone accounted for just over 53% of net sales.
The iPhone business is also among the fastest growing segments. It rose 12% on an annual basis last year and 16% in the year prior. Apple has three other business segments that generate sales in the double-digit billions, but the iPhone is the only one in the triple-digits.
iPad is in second placeThe tablet market comes in at a distant second. Last year, the iPad generated $30.3 billion in net sales, about 16.5% of the total. Notably, both figures are down quite a bit from 2013 -- the iPad generated $32 billion that year, roughly 19% of net sales.
The iPad has been an ugly stain on an otherwise solid series of earnings reports. The category has underperformed the broader tablet market (though to be fair, some rival vendors have done even worse). So long as the other businesses are growing, the declining iPad sales are not a major concern. Still, it is disappointing for a product category that was once widely believed to hold the greatest potential for the company.
Mac is a close thirdThe PC market is almost as important to Apple as the market for tablets. Last year, Macs brought in $24.1 billion or just over 13% of sales.
This category grew rapidly last year with net sales rising 12% and actual product sales up 16%. While it is possible the Mac business could bebenefitingfroma halo effect -- the nature of its ecosystem ofproducts encourages customers to purchase multiple Apple gadgets -- price may be the most significant contributing factor.
Apple has worked to reduce the price of its entry-level models over the last few years, dropping the price of its Macsand lowering the total cost of ownership with free software updates. Assuming current trends continue, the Mac could overtake the iPad in just a few years tobecome the second largest business.
Apps may be the fastest-growing business, but services could still bring in more revenueiTunes and Software and Services is the fourth largest business segment. This category includes a variety of products, including media (music, movies, and book sales), services (AppleCare), and app sales.
Last year, analysts at Macquarie (via Om Malik) broke the segment downinto its various components. According to their estimates, services were the biggest contributor in fiscal 2014, generating roughly $7.8 billion of net sales. Media came in second with $5.9 billion of net sales, while app-related revenue generated roughly $4.3 billion.
That would make services the fourth largest category for Apple, but the app market should be far more interesting to investors. Given the recent rise of free-to-play mobile games, app revenue has exploded, and this tremendous growth is projected to continue in the years ahead. Macquarie estimates that, by 2020, apps will bring in nearly $15 billion in net sales annually.
The introduction of Apple Pay, however, could shake things up as it is now counted alongside other services like AppleCare. It was not a factor in fiscal 2014, but this year -- and going forward -- service-related revenue should ramp up if Apple Pay adoption meaningfully increases, and payments could emerge as a vital market for Apple.
Accessory sales brought in more than $6 billion last yearCases and cables are a big business for Apple -- Apple-branded accessories brought in $6.1 billion last year, just over 3% of net sales. That is up more than 7% from the prior year. Roughly three out of every four smartphone owners use a case -- so the more iPhones Apple sells, the more accessories it should expect to move.
Apple TV may havealso been a significant contributor as it was counted among this segment in 2014. With its AirPlay capabilities, Apple TV has historically been seen as an accessory for other Apple products (the iPad, iPhone, and Mac). Rumors of an upcoming Apple TV app store and new set-top device could have major implications for the TV industry. If Apple delivers, this could be yet another major growth driver for the company.
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