An attendee views an Apple Inc. iPhone ahead of an event at the Steve Jobs Theater in Cupertino. (Photographer: David Paul Morris/Bloomberg)

Apple Needs to Lean on Its Supporting Cast as Its Star Fades

(Bloomberg Opinion) -- For more than a decade, Apple Inc. has relied on one product to drive growth, and it’s worked.

Its decision to stop providing shipment data for iPhones and other devices, announced with its fiscal fourth-quarter results on Thursday, indicates Apple itself doesn’t see a lot of growth ahead and worries such data might distract from a more important metric: revenue.

Couple that with a bit of weakness in quarterly shipments and a disappointing outlook for the holiday period, and it becomes clear that now may be the time to lean more on its second-string lineup of products.

This means more effort to boost shipments of accessories like the Apple Watch, AirPods and, dare I say it, the HomePod.

Apple acknowledged this shift when it announced Thursday that it would change the category name from Other Products to Wearables, Home, and Accessories. That’s also part of an accounting change that moves some services revenue into a different category.

HomePod was an abject failure, and the AirPower wireless charging pad is missing in action. But Apple Watch Series 4 is getting rave reviews, and the sleeper hit, the AirPods, will likely do well when that product gets updated. A refresh of its Mac lineup is nice, but it’s destined to remain a niche product in a market where people are less interested in buying computers.

To date, Apple has relied on cheaper versions of the iPhone as a gateway drug to the broader suite of ridiculously priced handsets. As my colleague Shira Ovide noted in August, these low-priced phones “push people to the more expensive versions that Apple increasingly relies on for its sales growth.”

But lower-than-expected fourth-quarter shipments coupled with a soft revenue forecast for the fiscal first quarter indicate that even this business model isn’t bulletproof.

Apple Needs to Lean on Its Supporting Cast as Its Star Fades
Much of the talk has been about Apple’s services as a way to reduce the burden on devices. But at its heart, Apple is a hardware company with those products driving people to offerings such as iTunes, the App store and Apple Pay.

In the September quarter, revenue from Other Products — which includes accessories and amortized software and services sales — climbed around 31 percent. That’s almost double the 17.4 percent rise in services revenue and well ahead of of the corporate growth rate of 19.6 percent.

In Thursday’s investor conference call, CEO Tim Cook once again talked up the Apple Watch. It’s a product he’s clearly proud of, and deservedly so. That device is a vast improvement over its first incarnation. 

If it gets the kind of reception that reviews would suggest, then not only can Apple Watch boost revenue, but it will make consumers even more addicted to the Apple ecosystem. The same can be said for AirPods, which remain among the best wireless earphones available.

A renewed focus on accessories, though, means Apple will have to sort out its HomePod debacle. Amazon.com Inc. has thoroughly schooled the company in this category, and Google’s offering isn’t terrible either. That failure risks the future of HomeKit, a software platform that’s supposed to be the center of the connected home.

Apple has been lucky so far that Amazon.com’s Alexa platform doesn’t encroach on the smartphone market. But Google could be a real threat.

Yet neither company comes close to Cupertino in offering a solid lineup of accessories, which means now is the time for Apple to double down on that category as a way to keep feeding its customers’ addiction.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

©2018 Bloomberg L.P.