How Apple reinvents its core business to keep growing - Macworld

Last week, Apple’s Q3 2019 financial results caused a bit of a hubbub because iPhone revenue was—for the first time in seven years—less than half of Apple’s overall revenue. The cause is a slowdown in iPhone sales combined with dramatic growth in two other areas: wearables and services.

But this is hardly the first time Apple has experienced a major change in the shape of its business. In fact, Apple is a company that’s rarely stood still in terms of its evolution.

To prove the point, let’s step through 20 years of Apple’s business, five years at a time.

[ Further reading: Learn more about macOS Catalina ]

1999: The Mac comeback

Jason Snell

Steve Jobs came back to Apple in 1997 and we all know what happened next. But that transformation took a while. Look at a sample quarter from twenty years ago—the fourth fiscal quarter of 1999—and you’ll see a very different company that the Apple of today.

First off, there was only really one Apple product back then: the Mac. 80 percent of Apple’s revenue came from the Mac, with 20 percent coming from other products, mostly Mac accessories. In the fourth quarter of 1999, Apple’s total revenue was $1.34 billion, generating $111 million in profit. To put that in perspective, Apple generated that much revenue every two days or so in the third quarter of 2019.

In the fourth quarter of 1999, Apple sold 772,000 Macs. We don’t know how many Macs Apple sells in a quarter now, because it stopped releasing unit sales figures last year, but it’s probably in the ballpark of four million. Keep this in mind when you consider that the Mac is now only roughly 10 percent of Apple’s overall business: back when the Mac was 80 percent of Apple’s business, Apple was selling less than a fifth as many Macs per quarter as it is in 2019.

2004: Rise of the iPod

Jason Snell

2004 was an inflection point for Apple. After the introduction of the iPod in late 2001, sales built slowly… until late 2004, when they shot up like a rocket. The fourth financial quarter of 2004 is actually the moment before the iPod rocket exploded. It is, in fact, the last quarter in which the Mac was the majority of Apple’s business. (That’s right—the Mac has been a minority component of Apple’s overall revenue for 15 years.)

The revenue mix in late 2004 was 63 percent Mac, 12 percent iPod, and 25 percent other products. In the fourth quarter of 2002, Apple sold 836,000 Macs, more than it was selling five years earlier. But it also sold two million iPods, a number that would double in the next year.

Apple was growing overall, too. The growth in iPod sales meant that Apple generated $2.35 billion in revenue—but only $106 million in profit. Apple’s explosion in profit growth was to lag behind its explosion in revenue growth, at least a little bit.

2009: The iPhone takes off

Jason Snell

In 2009, the Mac was doing better than five years earlier, and by a lot—Apple sold 2.6 million Macs in the fourth quarter of 2009, three times the number it sold during that quarter five years earlier. And yet, for all the Mac’s success it had shrunk to only 29 percent of Apple’s overall revenue.

This was an era driven by exploding iPhone growth and still-strong iPod sales. Apple sold 6.9 million iPhones during the period, and a staggering 11 million iPods. Overall, the iPhone represented 38 percent of Apple’s business, and the iPod 13 percent.

Apple’s business was also much larger overall. The fourth quarter of 2009 generated $11.5 billion in revenue, more than four times the quarter five years earlier. And as for profit? The profit had started to flow in torrents. In the fourth quarter of 2009, Apple generated $2.2 billion in profit. The money was finally rolling in.

2014: iPods fade, iPads replace

Jason Snell

By 2014, Apple more closely resembles the company we see today. The iPhone dominates revenue, with 53 percent of the overall total. The iPod has faded away—its sales are so small (2.9 million) that Apple has hidden their revenue inside the “other products” category, which itself only makes up 5 percent of the total pie. Replacing it as a revenue engine is the iPad, which contributes 16 percent to the total. The Mac, now selling a staggering 4.4 million units (170 percent more than five years earlier!), contributes 15 percent to the total.

Apple’s business exploded between 2004 and 2009, but it’s nothing compared to the inflation between 2009 and 2014. During the third quarter of 2014, Apple generated $37.4 billion in revenue—three times what it did five years earlier!—and $7.7 billion in profit.

2019: The rise of the rest

Jason Snell

That brings us to the most recent quarter, in which Apple generated $53.8 billion of revenue and $10 billion in profit. While it’s true that iPhone sales are slumping, Apple’s general profit and revenue trajectory continues upward, albeit in fits and starts. The iPhone dropping to 48 percent of Apple’s total revenue is, in part, because of the rapid growth of the Wearables (formerly Other) category, as well as the ongoing growth of the Services line.

Meanwhile, let’s not sleep on the Mac and the iPad. The 11 percent and nine percent of revenue they generate may seem small, but that overall Apple revenue has exploded. Together, they contributed more than $10 billion in revenue.

Watching Apple’s business change incrementally, quarter to quarter, sometimes makes it hard to see the bigger pictures. Its product lines rise and fall, but up to this point, the company’s overall trajectory this century has been pretty dramatically upward. One key reason for that is a regular addition of new products and services that can fuel growth and compensate for products that have stopped growing or, in the case of the iPod, have faded out entirely.

Apple’s come a long way from those quarters early in the 2000s when it couldn’t even show a profit. By my back-of-the-envelope calculations, Apple has generated $450 billion in profit since 2000, $429 billion of that in the last ten years, and $277 billion of it in the last five years.

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https://www.macworld.com/article/3430476/how-apple-reinvents-its-core-business-to-keep-growing.html

2019-08-07 11:00:00Z
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