From a note to clients by Guggenheim’s Robert Cihra that landed in my inbox Wednesday:
iPhones Matter Now, Services Matter Later. We forecast iPhones continuing to drive >70% of Apple’s growth from FY17-20E, actually accelerating from 62% to 66% of revenue mix thanks to their biggest upgrade cycle in 3yrs. But we see Services contributing the next 25% of Apple’s growth, as its second-largest business (we estimate 13% going to 15% of revenue), with the potential to become Apple’s biggest contributor to growth starting FY20E. More meaningfully, we forecast >60% gross margins setting up Services to account for nearly 40% of Apple’s profit growth over the next 3yrs and increasing to 24% of its profit pool from 20% today.
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Reiterate Buy rating and $190 price target.
My take: It’s the end of an era. The iPhone drove Apple’s revenue growth for more than a decade. Barring some new hit product, according to Cihra, Services takes over in 2020.