In the first quarter of 2017, Apple iPhone sales peaked at 78 million units worldwide. Worried that sales of the device were dropping off, Apple decided to start focusing on selling services to the 728 million iPhone users worldwide as the second quarter of 2017 started. Apple set a goal to double its services related revenue to $50 billion from $25 billion by 2020. This was best accomplished by having iPhone users sign up to make recurring monthly payments for subscription services such as Apple Music, Apple News+, and more. And for fiscal 2020, which ended in September, Apple generated $53.77 billion in services revenue topping its goal right on time.
Within the next four years Apple will be generating the majority of its revenues from Services instead of the iPhone. This will take place even though the growth in Services revenue will decline to 11% a year from the 22% growth rate that the division has enjoyed over the last four years. By Fiscal 2024, the services unit will bring in $81.5 billion says Forbes as Apple relies on the growth of both subscription titles and the apps purchased from the App Store. While Apple’s Services businesses continue to grow, iPhone gross should grow at an annual rate of only 5% per annum over the next five years to approximately $167 billion. Between 2016 and 2020, iPhone revenue was flat.
Also interesting is a word that Apple’s Services units are now experiencing stronger profit margins than what Apple’s hardware has been generating. During the fiscal year 2020, profit margins for Apple’s hardware products came to 31.5% compared to a much stronger 66% for services. If margins remain at current levels, gross profits for Services would be $54 billion in the fiscal year 2024 topping the iPhone’s $53 billion gross profit for the same year.
Some of these forecasts are dependent on what happens with the Justice Department’s suit against Google. The latter pays Apple to be the default search engine on iPhone models and if the DOJ blocks Google from making these payments, the result could negatively impact Apple’s Services growth.
