Apple Inc (NASDAQ:AAPL) surpassed analyst estimates in its fiscal third quarter with flying colors, beating on earnings, revenue, average selling price and services revenue.
Following its quarterly results, analysts are painting a picture of a much different Apple than the smartphone giant we see today.
As iPhone sales growth continues to slow, its wearables and services segments waiting in the wings may soon take center stage.
iPhone sales came in at 41.3 million in the most-recent quarter, slightly below analyst expectations of 41.79 million.
READ: Apple crushes estimates in its fiscal third quarter, reporting a boost in services revenue
Three new iPhones are expected to launch in September, though all the details have not yet been revealed.
“We are unconvinced that iPhone can remain competitive among the upcoming wave of flagships. Longer term, we expect niche market segments (IoT) and services (voice) to erode Apple's smartphone-centric platform advantage,” wrote Oppenheimer analyst Andrew Uerkwitz in a note to clients Wednesday.
The analyst believes that Apple no longer has the market or country tailwinds to drive iPhone growth, citing a longer wait-time between smartphone replacements and the “diminishing utility” of high-end phones. The analyst reiterated a Perform rating on the shares.
Services segment
The company’s hope for growth may lie within its fast-growing services segment, which includes Apple Music, Apple Care, iCloud and the App Store.
The services revenue jumped 31% to US$9.55bn, above analyst estimates of US$9.2bn.
CEO Tim Cook set a goal in January 2017 to double services revenue to more than US$14bn per quarter by 2020.
Wearable tech and the trade war
Another booming segment is the “other products” category, which includes its wearables like the Apple Watch and Airpods as well as its home products like the HomePod speaker.
The quick-growing category accounted for US$3.74bn in revenue, a 37% jump from the US$2.74bn reported in the previous third quarter. It was slightly down from the segment’s second-quarter revenue of US$3.95bn.
"Apple Watch delivered record June quarter performance with growth in the mid-40 percent range, and we are thrilled to see so many customers enjoying AirPods. It reminds me of the early days of iPod, when I started noticing white earbuds everywhere I went," said Cook said on the post-earnings call.
The Apple Watch is still the reigning champ of the wearables market. Apple was the top wearables vendor in June with a 16.1% market share, according to market research group IDC.
READ: Apple Watch, FitBit could feel the heat of President Trump’s China tariffs
However, a looming trade war between the US and China is a growing threat to the “other products” division.
While iPhones and Mac computers have been spared from the US tariffs on Chinese goods, Apple’s accessories aren’t exempt. A price hike on the growing segment could be a blow to its profit margin.
Reaching the trillion-dollar mark
Post-earnings, the tech giant is inching closer and closer to the trillion-dollar-mark with a current market cap of US$982.684bn.
“Rather like the Dow at 25k, you kind of get the feeling investors will conspire to nudge it over the line. If you’re in FAANGs now I don’t see why you wouldn’t rotate some equity out of more exposed companies like Facebook and Netflix and opt for relative safety in Apple, whose multiples remain well short of FAANG peers,” wrote Markets.com analyst Neil Wilson.
Apple shares will need to reach US$203 per share to hit that milestone mark. Shares were up more than 5% to US$200.67, a new record high, in mid-morning trading