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Apple is bigger than the iPhone – it’s all about services now

Apple device sales are slowing; almost across the board. iPhone, iPad and Mac sales are all down year-on-year. That was the reality outlined during the firm’s quarterly earnings call on Tuesday.

The firm sold 40.4 million iPhones over the last three months (a 15% drop on 2015), while the iPad is down 8.3% and the Macs down 10.5%. The Apple Watch, although Apple remains mum on actual sales numbers, clearly isn’t the anticipated phenomenon.

It’s harming the bottom line too. Compared to the corresponding three month period of 2015, profits and revenue are down 27% and 15% respectively. Profit margins are also down more than a percentage point thanks largely to the iPhone SE launch

The outlook for the forthcoming iPhone launch quarter – always a boom period for Apple – appears flat as the company anticipates a soft reception for a soft upgrade.

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Usually, the Wall Street vultures would be circling above Cupertino ready to take great chunks out of the stock price, but the company beat some low expectations and thus tens of billions are being added to Apple’s value as we speak.

There was more good news for Apple in terms of services. The firm said it brought in a whopping $6 billion in revenue from the division during the last three months – that’s up 19% on last year.

That means the likes of Apple Music, Apple Pay (Cook called the growth “astronomical” during a conference call), the App Store, iCloud and iTunes are really starting to pay dividends for Apple.

Indeed, services are becoming so huge for Apple that Tim Cook said: “We expect it to be the size of a Fortune 100 company next year.”

That’s huge. With the days of endless hardware growth now over, such a huge leap in the services division will be essential for Apple’s future.

If iPhone and iPad owners are upgrading less regularly, which appears to be the case amid Apple’s vow it is welcoming more and more switchers and first time smartphone owners, then purchases of apps, music, storage plans and payments through Apple Pay are going to become increasingly important to Apple’s bottom line.

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