PAY TO PLAY: APPLE laying groundwork for iPhone subscription… Profit Continues to Fall

Apple is laying the groundwork for an iPhone subscription

  • Some investors want Apple to sell its iPhone on a subscription basis to shift more of Apple’s revenue from transactional sales to recurring revenue.
  • Apple CEO Tim Cook doesn’t shoot down the idea during a conference call on Wednesday and suggests that Apple is working on new ways to pay for iPhones on a monthly basis.
  • “We’re cognizant that there are lots of users out there that want a sort of a recurring payment like that,” Cook says.

Apple investors have speculated for years about the possibility that Apple could sell hardware, like the iPhone, on a subscription basis.

It’s been a hot topic of conversation among analysts because investors tend to value the predictability of recurring revenue.

Under the argument for an iPhone subscription, which some people call Apple Prime after the Amazon program of the same name, Apple would bundle hardware upgrades with services such as iCloud storage or Apple TV+ content and hardware for a single monthly fee. This would let it switch iPhone sales from a transactional model to a subscription model, potentially driving the stock price up without having to increase product sales or prices dramatically.

During Wednesday’s earnings call, when analyst Toni Sacconaghi asked about the idea of a prime subscription, Apple CEO Tim Cook did not shoot down the idea. In fact, he suggested that something like it was already in effect.

In terms of hardware as a service or as a bundle, if you will, there are customers today that essentially view the hardware like that because they’re on upgrade plans and so forth,” Cook said during an earnings call. “So to some degree that exists today.”

Cook went on to say, using bullish language, that Apple sees it as a major growth area.

“My perspective is that will grow in the future to larger numbers. It will grow disproportionately,” he continued.

Apple profits hit by slowing iPhone sales

Apple’s business is being tested by ongoing weakening of its iPhone sales.

In the most recent quarter, iPhone sales dropped to $33.4bn (£25.9bn), down almost 10% year-on-year.

The fall extended a streak of declines and hit the firm’s profits in the quarter, which slipped about 3% year-on-year to $13.7bn.

The firm’s profit and revenue for the full financial year also fell for the first time since 2016, weighed down by the iPhone results.

In a presentation after the firm released its earnings, Apple boss Tim Cook hastened to reassure investors that the declines in iPhone sales are slowing, thanks to the popularity of the firm’s latest model, the iPhone 11.

Apple Wants to Forget Its Year. Investors Shouldn’t.

 

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