Apple wasn't using sleight of hand, but instead simply looking for some good news to report with the bad, the analysts argued. "Apple had to have known about [weaker] iPhone sales and their dependence on the iPhone, and they knew they had to do something," Blau said in January. He speculated that Apple was prepared long ago to trumpet Services, but put the discussion in its back pocket for when it needed a diversion.
The $6 billion that Services recorded for the March quarter was significant, putting it in the No. 2 spot behind the iPhone's massive $32.9 billion and trumping the Mac's $5.1 revenue stream. Although without the Samsung payment factored in, Service's $5.5 billion was less impressive.
For all the talk about Services' growth, however, neither Dawson or Blau saw the category as more than peripheral to Apple's revenue fortunes. In the March quarter, for example, Services accounted for 11.8% of all revenue, compared to the iPhone's 65%.
"Services can never make up the difference," said Dawson today, referring to shortfalls in iPhone revenue. "Services is great, it grows off the installed base, but it's still small and it can't ever change the instability of product sales. Apple and investors have to accept that huge unpredictability. Apple is not a services business, it's small in the grand scheme of things, and it's not big enough to become the narrative."
Dawson had a point: The iPhone revenue difference between 2015's March quarter and this year's was $7.4 billion, more than not only the $6 billion that Services brought in, but more than seven times the increase of Services over 2015's first quarter.
The highlight of Services may have had other purposes, the analysts said.
In January, both Dawson and Blau pointed out the likelihood that Cook's touting of Services presaged a bigger play in the category.
"We may start to see Apple take more ownership of some app content, and maybe acquisitions as well," said Blau. But he thought a video-based service was the most likely, not a big stretch since Apple's interest there has been discussed for years by analysts, pundits and Apple enthusiasts.
Dawson echoed Blau today. "They called Apple Music their first subscription business," Dawson said of remarks by Cook on Tuesday, noting that the CEO wouldn't have said as much if he wasn't implying there will be more coming. "Video would be the most obvious."
The Services category of Apple's revenue report reached $6 billion in the March quarter, down slightly from the December 2015 quarter. Services boasted a year-over-year growth rate of about 20%, or 11% if the one-time payment from Samsung was discounted. Data: Apple, SEC (Click on image to enlarge)
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