It’s been some time since the Journal described anything at Apple as “surging.”
From Dan Gallagher’s “Apple’s New Buds Sing an Old Tune” ($) in Monday’s Journal:
It is shaping up to be a strong season for Apple’s wearables business, which also includes the Apple Watch. Analysts currently expect revenue for the company’s Wearables, Home and Accessories segment to surge 34% year over year to $9.8 billion for the fiscal first quarter ending December. That’s an acceleration from the 33% growth seen in the same period last year, which was also helped by the original AirPods. Jim Suva of Citigroup boosted his price target on Apple by 20% to $300 earlier this week, projecting wearable revenue surpassing $10 billion this quarter.
Wearables are Apple’s fastest-growing business—and rapidly approaching the size of its vaunted services arm. Total wearable revenue surged 41% to $24.5 billion for Apple’s full fiscal year that ended in September. Service revenue hit $46.3 billion for the fiscal year, but its 16% increase was a notable deceleration from 22% growth in the preceding year. Apple doesn’t disclose specific sales figures for wearable devices, but the company’s 10-K filing did cite AirPods as the primary factor driving wearable growth in the recent fiscal year.
The shift to services has been a key part of the narrative driving Apple’s stock price—and valuation—to new highs this year. The company has furthered this effort with recent new offerings such as Apple TV+ and Apple Arcade. But Apple’s services are a complicated mix of high-margin contributions like AppleCare, iCloud and license fees from Google that offset the lower margins of its media-related fare. Due to heavy promotions and the cost of producing high-caliber programming, few analysts expect Apple TV+ to be a significant contributor to the company’s business in the current fiscal year.
By contrast, AirPods show Apple playing to its strengths. The company has long excelled at well-designed products it can sell at a premium. And because they are designed to work closely with the iPhone, wearable devices can serve to further lock in customers to what remains Apple’s largest business. This is a tune Apple knows well.
My take: Gallagher on Apple is like a breath of fresh air after so much derision from Tripp Mickle. The former came up through East Bay tech reporting, the latter through NASCAR, hockey and the Olympics.
See also: The Apple 3.0 Tripp Mickle archives.