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Rumor has it that Apple (APPL) AAPL +0.2% will be releasing its cheapest ever highest level phone this fall.
Having excellent influence tech magazine Tom’s Guide recently posts a leak claiming iPhone 12.
That will retail, starting at the price of $549. That is almost half of what Apple charged for the iPhone X a few years ago.
The leak came short after Apple releases its second “budget” phone, iPhone SE sells for the price of $399. It’s a hundred rupees less than the first iPhone.
It raises the question: Why is the most premium tech product maker all of a sudden selling itself short?
As I will show in a moment. Apple’s business is entering a new history, where iPhone profits won’t matter anymore.
Low price labels may seem like a feeling move to attack competition.
But like a chess master secretly makes plans several moves ahead.
Apple is using cheap phones to seize what Apple’s CEO, Tim Cook. He calls it the “mother of all opportunities.”
The essential number in Apple’s business
iPhone is easily the most successful product in history. Since its introduction, Apple has sold more than a trillion dollars’ value of iPhones.
And for the years, iPhone generates more than half of Apple’s total sales.
But iPhone was more than Apple’s biggest moneymaker. Apple’s device uses to connect two different networks into the pockets of over a billion people.
Take a look at this chart. It shows the growth of Apple’s active devices all across the world:
Thanks to iPhone, Apple now has 1.5 billion active devices like Phones, Watches, etc.
They use by over a billion people from all across the world. The company adds a whopping half-billion devices during the last few years alone.
Think about it, nearly one in seven people now carry around an Apple device every day.
Today, those 1.5 billion active devices are the essential driver of Apple’s business.
Even more important than phone sales alone. Because every day, Apple earns more and more money from them.
Apple makes much money outside an Apple store
It does so through countless services connects to Apple devices.
Take payments. Apple earns money every time anyone uses an iPhone to shop.
So when they pay at a local grocery store with Apple Pay. Apple gets a cut.
Likewise, when they buy an app from the App Store, Apple gets an amount.
Then there is a set of rooms of subscription services that Apple conveniently pushes roughly into the faces of iPhone holders.
For starters, Apple sells a very excessive warranty and insurance service like AppleCare.
It amounts to about one-fifth of the phone price. Then there is the iCloud cloud service and the magazine subscription service, Apple News.
In 2015, Apple also launched its music streaming service like Apple Music.
In just four years, Apple Music grew to 68 million subscribers. It became the world’s second-biggest music streamer.
Last year, Apple joined the video streaming race with Apple TV+. Apple has not reported on its subscriptions.
But several sources peg-top the number at 10 to 30 million.
The least visible, yet very great deal of profit, side of Apple’s services business is licensing.
Apple charges companies billions of dollars to get their services or apps on Apple devices.
For instance, Google GOOGL -0.8% pays Apple $7 billion a year to be the default search engine on iPhones.
There are many more minor Apple services that I have not mentions. And every one of them pulls in more money than one may think.
Apple now earns more from its services than it does from the iPhone
Let me show one of the most important charts on Apple right now. It shows how much of its profits Apple earns.
From the services versus products in recent years:
In 2017, Apple products earned the lion’s share of their profits. At the same time, services made up just 15%.
Today, services bring in nearly half of Apple’s total gross profits. So apple has just almost dipped its toes in this industry.
The “mother of all chances” lies in enterprise services
Now Apple has set its faculty on a much larger bite of the apple: enterprise services.
It is such an incredible producing deal of profits industry that Apple’s CEO, Tim Cook.
He calls it the “mother of all opportunities.”
One probably has not notices it. But Apple is already making moves to get its foot in there.
Behind the headlines, it has started companies with the technologies targets at businesses very quickly.
Last month, Apple bought Fleet smith, it is a software company.
It helps businesses move and track Apple devices across workplaces.
It is part of Apple’s plan to get the companies to use Apple devices. In turn, its enterprise’s services.
A few weeks ago, Apple bought Mobee wave, and it is a company with technology.
That could turn the iPhones into a mobile payment route. In addition, this technology will get Apple’s hands on a massive $69 billion point-of-sale terminal industry.
I expect more similar assets down the line that could soon change smoothly into the most terrific deal of profits suite of Apple’s services.
The end of Apple as we know it—but in a good way
Apple does not break down its revenue by product anymore. But by my calculations, iPhone is no longer Apple’s biggest moneymaker. It is a service.
That is why Apple does not care about iPhone prices anymore. Instead, it aims to put more and more of its phones in people’s hands at whatever cost.
Because the more people carry iPhones, the more people will buy the Apple services.
And it is working.
Last quarter, Apple’s sales from the services moves to a record. But with its push into money-spinning enterprise services.
I convince Apple’s growth story is just starting. For this reason, Apple stock sits at the top of my watch list.
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