A few days ago, Morgan Stanley analyst Katy L. Huberty made an interesting prediction regarding Apple Services. While we have all been noticing the rise of this relatively new revenue source for Apple, and we also know that there is room for a massive growth, few have been willing to make any specific predictions about when that will happen and just how much it might be. This projection will likely be one of a growing number.
Ms Huberty projects that Services will make up 50% of Apple’s overall revenue growth over the next five years. As fast as they are currently growing, this is an exponential jump. Conversely, she believes that the iPhone, which accounted for 86% of Apple’s massive revenue over the last five years, will only provide 22% of their growth between now and 2023. That is a precipitous rise and fall.
Ms Hubert’s assertion is that Apple’s stock price will continue to rise, despite the fact that Apple’s device sales have recently plateaued. However, I think that its a little early to call for the demise of Apple’s hardware growth. We don’t know how much Apple’s iPhone sales have actually fallen yet, and won’t for a few weeks now. Any assertions based on the supply chain can’t be completely relied upon, as we saw in Apple’s 2017 4th Quarter. We will know hard numbers soon enough, and it pays to wait until then before pronouncing that the iPhone is in decline. We also can’t ignore the fact that a larger screen model and a less expensive variant of the X coming this Fall. That won’t provide five years of growth, but it will likely provide a strong one next year.
While this article only touches on the iPhone specifically, Ms Huberty also refers to Apple’s hardware as a whole, as well. Based on Apple’s increased spending in R&D that I covered yesterday, I don’t think we can dismiss the new possibilities that exist, as at least two or three big ones should be out within that five year span. While MicroLED screens may not be a headline feature in and of themselves, an even thinner device with better battery life that those screens enable is the kind of thing that can drive sales.
While MicroLED is interesting and has possibilities, the real potential lies with Apple’s work in 3D Sensing, Augmented Reality, and AR Glasses. Early projections have Apple releasing their glasses within the next two to three years, and this is just the kind of hardware category that could be a huge hit on par with the iPhone and iPad. Considering that Apple has defined several categories before, and is on its way to spending more than anyone else in tech on R&D, I don’t think we can count chickens on their hardware sales over the next five years quite yet.
Still, it is good to see such a strong prediction for the growth of Apple’s Services. If they can parley their R&D spending into continued hardware sales growth and expand their Services revenue, that would be a powerful combination that would secure the company’s place in the tech world into the next decade.