Rise of Apple Services: How fields of Athenry will fatten Apple’s newest cash cow

3 Nov 2017

Apple CEO Tim Cook pictured with students at Trinity College, Dublin, two years ago. Image: Laura Hutton/Shutterstock

The iPhone is still king but watch how Apple Services is changing the company’s fundamentals.

Apple last night (2 November) reported Q4 revenues of $52bn and a total of $229.2bn for the full financial year.

This yielded a quarterly profit of $10.7bn and, for the full financial year, the California tech giant reported a whopping $48.4bn in profits, making it one of the most profitable companies on the planet.

Gross margin for the quarter was 37.9pc, down slightly from 38pc last year. Global sales outside the US now account for 62pc of Apple’s revenues. Shareholders will be rewarded with a dividend payment of $0.63 per share.

“We’re happy to report a very strong finish to a great fiscal 2017, with record fourth-quarter revenue, year-over-year growth for all our product categories and our best quarter ever for Services,” said Tim Cook, Apple’s CEO.

“With fantastic new products, including iPhone 8 and iPhone 8 Plus, Apple Watch Series 3, and Apple TV 4K joining our product line-up, we’re looking forward to a great holiday season, and, with the launch of iPhone X getting underway right now, we couldn’t be more excited as we begin to deliver our vision for the future with this stunning device.”

During Q4, Apple sold 46.7m iPhone devices, up from 45.5m a year ago, showing there is no let-up in demand for the flagship smartphone.

The company sold 10.3m iPads compared with 9.3m last year while Mac sales rose to 5.4m from 4.9m last year.

This fourth quarter combined with the current fiscal first quarter, which ties in with the crucial Christmas sales season, will be quite telling about just what kind of shape Apple is in.

When you think about it, in September, Apple launched not only the new iPhone 8 and iPhone 8 Plus but a new all-screen iPhone X to mark 10 years of the iPhone. The iPhone X comes with an edge-to-edge display and a facial-recognition system that uses IR and 3D sensors. The phone is due to go on sale today (3 November) around the world but there have already been reports of delays of up to six weeks due to production issues.

“Production is going well,” Cook told Bloomberg. “We’re doing more each week and I’m pleased with how things are going.”

A betting person would argue that Apple may have cannibalised sales of the next-generation iPhone 8 and 8 Plus by dangling the carrot of a more expensive and shiny iPhone X in front of image-conscious punters. But no, it seems that Apple has this one figured out: demand for iPhone products is insatiable.

Fields and fields of data

West reawakens as Apple gets go-ahead to build Athenry data centre

The proposed data centre in Athenry. Image: Apple

Apple has a new cash cow to care for as well as the all-consuming iPhone: say hello to Services.

After the iPhone, Services is now the second-biggest revenue source for Apple.

In Q4, iPhone sales accounted for 55pc of revenue while Services, including platforms such as Apple Music and iCloud, now accounts for 16pc of Apple’s overall revenue stream.

Figures: Apple

To give you a sense of perspective, Apple’s Mac group delivers 14pc of revenue.

That means that Services from subscribers bring in more dosh than revenue from Other products such as iPad, Apple Watch, iPod Touch or Beats products.

And now you can understand why building a data centre in Galway, as well as in Denmark, is so important to Apple’s future strategy.

Earlier this week, Apple received the news that its €850m data centre in Athenry was given the green light after a judge rejected an appeal to the project from two objectors. If there is no further appeal in the Supreme Court, it will go ahead.

The data centre is to be host to popular Apple services such as iCloud, Apple Music, Siri and various e-commerce activities. The Athenry base is to be powered by 100pc renewable energy and will be 166,000 sq m in size, but hidden from the public eye by forest.

Construction of the first phase will generate 300 temporary jobs in Athenry and, when it is operational, it will employ 100 people full-time.

The iPhone is still king, but Services will be a kingmaker. And a small town on the west coast of Ireland will at the heart of this evolution.

Apple CEO Tim Cook pictured with students at Trinity College, Dublin, two years ago. Image: Laura Hutton/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years