Apple: Can services save the day?

“I recently read an interesting article containing excerpts from last week’s Macquarie note to clients regarding Apple,” Bill Maurer writes for Seeking Alpha. “The research firm believes the technology giant’s services business will help to drive a 400 basis point increase in the company’s gross margins over the next five years. If the analyst’s scenario plays out, we’ll be seeing nice revenue and earnings per share growth over the next five years. This analyst obviously disagrees with those who believe Apple’s best days are behind it.”

“The analyst is assuming no growth from hardware after the next iPhone upgrade cycle. Roughly 75% of the growth in gross margin dollars in the next five years comes from services, with nearly 100% of that coming after the iPhone 8,” Maurer writes. “There are a couple of interesting items here. First, the analyst basically believes services revenue will more than double over the next five years, a compound annual growth rate of 17%. That puts Apple services as a $50 billion-plus revenue driver by fiscal 2021. As a point of emphasis, the company recorded less than $44 billion in total revenues from the Mac and iPad in fiscal 2016.”

“By 2021, the analyst’s calculations basically show the services segment being 20% of Apple’s total business. Additionally, the math puts its total revenue at more than $266 billion. That’s decent growth from the current street expectation of $227.68 billion in fiscal 2017 and $244 billion in fiscal 2018,” Maurer writes. “Adding $30 billion in gross profit could be huge to the bottom line.”

Much more in the full article here.

MacDailyNews Take: Yes, as Maurer writes, even without expected beneficial tax rate changes, Apple looks primed for double-digit EPS.

Apple’s performance going forward will shock the less-informed naysayers.

Note also that Apple’s fiscal 2016 revenue from Services alone ($24.348 billion) would stand at #155 on the Fortune 500 list of the largest U.S. corporations by total revenue, ahead of the likes of Duke Energy, Time Warner Cable, and Halliburton.

SEE ALSO:
Apple executives shift focus to services business – October 26, 2016

13 Comments

  1. I never thought I’d say this but I’m actually getting bored with Apple in general.

    They have stopped delighting me with timely upgrades across their product line (besides the iPhone) for too long. They’re leaving money on the table not delivering regular Mac desktop upgrades. No way I want to do most of my pro work on a MBP (I have one and it is used for some heavy tasks but it isn’t my preference).

    Anyway, never thought I’d see the day Apple was getting dull. I hope to retract these thoughts soon based on new stuff. But how many of you are tired of fervently “wishing” for insanely great upgrades only to be continuously disappointed and left waiting, and waiting, and more waiting…

    1. and start hackintoshing.

      you can have the modern mac of your dreams, without all the fanboy bullcrap and ridiculous pricing..

      then, stop visiting mac fan sites, because they are just full of stockholm syndome fans that are in it for the fashion only.

      1. Yeah but I still hear of dealing with compatibility issues and upgrades with Hackintoshes. I hear though that some modern components are much more compatible with Hackintoshes and the MacOS. Is that true? I don’t want to pay a bargain with the Devil dealing with problems and losing productivity.

        1. people who feel they need to live on the bleeding edge deserve all the problems they get. omg finl cut can use a touchbar. i better upgrade my os and hardware right away. these home movies are gonna look even better with the touchbar.

      1. Problem is IS the problem actually Cook? We are not privy to what’s going on inside Apple HQ. It would be Tim’s fault if he is not directing his troops or clearly articulating a vision beyond iPhones with them. We agree to the extent in some area’s Apple has been gone past a reasonable grace period that only can be justified if something truly great is in the works. But we have no real evidence or much in the way of rumors on that. Apple has to know it’s about exhausted or HAS exhausted it’s good will dollars by many of it’s users (especially pro). None of us would care to think it’s total chaos without a real focus inside Apple right now. Yes you know me well enough to know I don’t want to be another doomsayer. But if the shoe fits, and it’s starting to slip on rather well. 🙁

        1. The cultural changes happened immediately when Cook took the reins. iOS got all the resources, the Mac was put on the back burner or dumbed down to force iCloud onto the desktop.

          The problem lies first and foremost with leadership. All other problems at Apple are insignificant compared to what Cook is doing. Or rather, what he is not doing.

  2. The better question is:
    Will Apple’s Project McQueen be another Cook money pit?

    Many people are wondering what is going on with Apple’s surprising inability to scale up its server infrastructure as fast as everybody else. Consumer and Business oriented cloud services, SaaS, etc, are running circles around Apple right now. That is why Apple had no choice but to rent server space from its rivals.

    “Apple, which last year signed a deal to move parts of its iCloud to Google Cloud Platform, and also uses Azure and AWS, has struggled to expand its own infrastructure. ‘The fact that Apple now has gone back and signed a deal with Google basically says they don’t have as much faith in doing this internally as they thought they did’, a source told The Information (paywall) in March last year.”

    http://www.datacenterdynamics.com/content-tracks/servers-storage/apple-to-manufacture-data-center-cabinets-at-old-gt-advanced-sapphire-plant/97573.fullarticle

    One definitely has to wonder why Apple with all the resources it has and supposedly a great partnership with IBM still can’t seem to keep up. I think it’s because the Apple brass prefers to play around with characters like Iovine and Dre and dink around “innovating” hotel xmas trees and special gold watches rather than forge relationships with web services innovators, B2B software providers, and other cloud service leaders. Cook has gutted Apple’s ability to make world class server hardware and software with the intentional decision to rent music and sell headphones. It remains to be seen how well that is going to work out. I am not optimistic.

  3. I really think the next big thing from Apple is already here. No, this product isn’t something we necessarily hold in our hand, but it has nevertheless thrilled me to no end. Apple Pay truly demonstrates the Apple experience. Whether or not Apple ever tops the iPhone as a material product, Apple Pay matches that experience. And like the iPhone, there are endless possibilities for it’s use & will eventually be just as ubiquitous.

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