Why Apple’s Focus May Shift Away from Laptops, iPhones, and iPads
Hardware or Software?
Apple (AAPL) opened its annual weeklong developer’s conference yesterday. The tech giant unveiled its new MacBook Air, which includes a more powerful M2 processor. It also rolled out the upgraded iOS 16 and a new “buy now pay later” program called Apple Pay Later. Some industry observers argue Apple’s greatest upside lies in software development.
Apple posted record profits during the height of the pandemic. Hardware sales surged as workers and students bought up laptops, iPads, and iPhones, but some analysts argue that the trend is slowing down. A survey from FactSet predicts iPhone revenue will increase by just 6.2% this fiscal year compared to 39% in 2021. Experts blame parts shortages and production delays due to COVID-19 lockdowns.
Future Forecast
FactSet’s survey also found Apple’s service revenue could rise 17% this fiscal year to reach $80 billion. That would rank the division second after the iPhone in terms of sales. It would also outpace the combined revenue from iPads and Mac computers.
App Store videogames are one of Apple’s biggest money makers in the service category. They also connect to a highly-anticipated piece of hardware. Some say Apple’s extended-reality headset will be its next hit product. Additionally, the company’s latest ad campaign highlights ongoing efforts in privacy software.
Regulatory Uncertainty
One of the biggest question marks for Apple is what steps regulators will take. For example, the European Union may soon approve legislation targeting iPhone software. The measure would permit users to download apps outside of the App Store. That’s significant because Apple currently collects up to 30% of the revenue from in-app purchases.
Congress is debating legislation that’s similar to what the EU may enact. Many app developers and lawmakers argue Apple has too much control over certain aspects of the app ecosystem.
While analysts will be closely watching for more announcements this week, price action was relatively muted on Monday. Apple’s stock finished just slightly in the green, hinting that Wall Street is also split on the future the tech giant is charting for itself.
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