Apple shifts its focus to services as hardware sales fall

Apple is selling fewer iPhones, iPads and Macs when compared with this time last year. 

Reporting its 2016 third quarter earnings, Apple announced it had sold 40.4 million iPhones compared to 47.5 million last year (-15 per cent), 4.3 million Macs compared to 4.8 million last year (-10.5 per cent) and 10 million iPads compared to 10.9 million last year (-8.3 per cent).

The company’s overall gross margin is down quite a lot from 39.7 per cent to 38 per cent.

In spite of what on the surfafce look like negative results, Apple actually beat forecasts with some believing that the company is selling too many of the cheaper iPhone SE, that it is devaluing their other products and driving down demand for more expensive iPhones. 

In comments made to CNBC on Wednesday, Moor Insights & Strategy’s Patrick Moorhead said:"Margins went down, they sold a lot more iPhones SE than they had expected to, and Apple needs to be very careful of that."

CEO Tim Cook however was entirely positive about the results. He said: “We see a number of encouraging signs. I see a switcher rate that is the highest ever. I see the smartphone itself, lead by iPhone, becoming even more instrumental and important to peoples lives. It’s becoming essential.”

While hardware sales are down, all signs point to the future of Apple’s business stemming from services such as Apple Pay, iCloud, Apple Music and the App Store.

Apple’s CFO Luca Maestri said: “Our services business grew 19 per cent year-on-year and App Store revenue was the highest ever, as our installed base continued to grow and transacting customers hit an all-time record.”

Cook also hinted at a future direction for the company to go in with augmented reality (AR).

Speaking of the overnight success of Pokémon Go, Cook said: “It’s incredible what has happened there … It also does show that AR can be really great.

"We have been and continue to invest a lot in this. We are high on AR for the long run. We think there’s great things for customers and a great commercial opportunity. So we’re investing."

He was however reluctant to give any indication as to just how invested Apple are into AR: "There’s a tendency in this industry to call everything the new ‘the next computer platform.

"That said, I think AR can be huge. We’ll see whether it’s the next platform, but regardless, it will huge."

That the biggest growing area of its business is services could be a sign of the Cupertino-based tech juggernaut’s long-term direction.