After another record quarter of iPhone sales and revenue, it’s clear that Apple isn’t having trouble raking in cash. But there will come a time when iPhone growth will taper off — some believe that time is the current quarter — and Apple’s growth will have to come from new segments. The iPhone may be dominating Apple’s revenue right now, but the future of the company lies within the black hole that is "Other Products."
Apple’s newest products like the redesigned Apple TV and the recently launched Apple Watch, along with Beats headphones, the iPod, and various hardware accessories, are all lumped together in the Other Products category when Apple reports its earnings, in order to hide their growth, or decline (in the case of the iPod).
The future of the company lies in the black hole that is "Other Products"
"That was not a matter of not being transparent, it was a matter of not giving our competition insight — that's a product that we've worked really hard on," Apple CEO Tim Cook said during an earnings call last July when asked why Apple didn’t reveal Apple Watch sales numbers during its first quarter on sale. Apple announced the new reporting category in late 2014 after showing off the Apple Watch, making it clear that it was protecting its first new product line from sales scrutiny since Steve Jobs died (as much as it can protect anything it does from scrutiny).
Apple’s shadow is very long, and if it reported less than adequate sales of the Apple Watch when it launched last year, its stock would’ve tanked. But the stock tanked anyway, with fears of the first non-growth quarter for iPhone in Apple’s history coming in the next quarter, and no clear successor to its throne. iPhone sales only grew 1 percent from this time last year, and Mac and iPad sales are down 3 percent and 21 percent, respectively. With Apple so heavily reliant on the iPhone to maintain its growth rate and its reputation on Wall Street as a growth company, the cloudiness of the Other Products category does little to help ease tensions among stockholders.
Breaking out individual products isn’t a problem for most tech companies — Samsung gives out sales numbers when it feels like it and Amazon hasn’t found a number besides revenue that it likes since it was founded — but most companies haven’t sold products like Apple has over the years. And when a company that has maintained unparalleled success over the last decade changes its reporting habits with new products, it can raise a few eyebrows.
Will the Apple Car get lumped in with lightning cables?
Yes, revenues have gone up in the three quarters since the Apple Watch was introduced. Other Products brought in $4.3 billion in revenue compared to $1.6 billion in the first quarter the Apple Watch went on sale. That is easily the best yearly growth rate for any category of Apple products. But it’s unclear how much responsibility the Apple Watch has for that growth. Apple says this quarter garnered record Apple Watch sales, but it said the same about the Apple TV. Is the Apple Watch growing at a dramatic clip or barely setting sales records? Is the Apple TV and Beats products bringing in the lion's share of revenue? With the Apple Watch, does Apple have another product with growth potential like the iPhone or iPad, or is this another Apple TV, which will take a bit of time to be adopted by the market?
And what happens when another new product gets introduced? Will the Apple Car get lumped in with Lightning cables? Apple hasn’t indicated if and when it will break out products into their own sections from Other Products, but until they do, the success of its stock will depend on iPhone sales and iPhone sales alone. And with sales seemingly beginning to taper off, things aren't looking good for Apple on Wall Street.
Over the last 15 years, Apple has gone from one leading growth product to the next; iPod to iPhone to iPad (for a couple years) and back to the iPhone. But right now there is no successor. Or maybe there is. But no one is taking Apple’s word for it.