Apple Inc. (NASDAQ:AAPL) Turns To Services To Offset Slowing iPhone Sales

Apple Service Business

Apple Inc. (NASDAQ:AAPL) Second quarter earnings report provided the clearest of indication of how the company is positioning itself for the future. Apple has embarked on a strategy of selling an array of services, through its customer base of about $1.3 billion, as it looks to offset expected declines in iPhone sales.

Revenue from services offered by the company increased 31% to record highs of $9.2 billion. Apple store, Apple Music, iCloud Storage, and Apple Pay revenues accounted for a huge chunk of the growth.

“Slowly but surely, [Apple] is morphing into more than just an iPhone story and is displaying the ability to sustain revenue growth irrespective of iPhone trajectory,” Amit Daryanani, an analyst at RBC Capital Markets, wrote in a research note.

Chief Executive Officer Timothy Cook, has already confirmed that new services able to strengthen the company’s revenue base are in the pipeline. Healthcare, in particular, is an area of interest where Apple is expected to pay close attention to, going forward.

In the recent past, Apple has been adding new health tracking features to Apple Watches and iPhone as it seeks to strengthen its trove of data from which it hopes to generate significant value going forward.

Even with the changes, the Apple Executive has downplayed suggestions that the smartphone market has become saturated. The fact that there were a half a billion feature phones sold last year, according to Mr. Cook, is an indication that there are still some opportunities for growth in the sector.

Apple reported 2.9% increase in iPhone sales in the second quarter. More units could have been sold had the company not priced its flagship iPhone X at the high-end. However, a price tag of $999 helped boost the company’s phone revenue growth by 14%.

The tech giant is planning to develop iPhone models for emerging markets that would be affordable as it seeks to strengthen revenue from the hardware side of the business. India is one attractive market that the company hopes to target with affordable iPhones in the near future

$100 Billion Buyback program

Separately, Apple has announced plans to buy back additional $100 billion in stock, as part of an effort that seeks to return maximum value to shareholders. The iPhone maker has also increased its dividend offering by 16%, to 73 cents a share, to become the largest dividend payer.

In the recent quarter, Apple repurchased stock worth $23.5 billion, the largest single buyback ever carried in the world.  The company has so far returned $275 billion to shareholders since 2012. Buybacks and dividend offerings are expected to strengthen investor confidence in the stock which should see the share price tick higher.

Early this year the company announced plans to return $252 billion held abroad, after the passing of new tax laws in the U.S, expected to strengthen the buyback program going forward.