Accounting for 62% of trailing-12-month revenue, Apple’s (NASDAQ: AAPL) iPhone business ranks No. 1 when it comes to its importance to the tech giant’s top- and bottom-line results. Meanwhile, Apple’s fast-growing services business comes in at a formidable second place, representing 13% of total revenue. But it’s Apple’s smallest segment — other products — that arguably represents the company’s most important catalyst for growth.
Sure, other products, which includes revenue from Apple TV, Apple Watch, Beats products, the iPod Touch, and accessories, accounts for just 6% of revenue. But don’t let this small figure make you underappreciate this segment’s value to Apple’s business.
Image source: Apple Watch.
The growth opportunity
Just to pique your interest, here are two startling figures about the business:
- When adjusted to exclude the impact of an extra week, other products revenue increased 47% year over year in Apple’s most recent quarter.
- Apple Watch revenue, which is included in Apple’s other products segment, climbed 50% for the fourth quarter in a row in fiscal Q1 (Apple Watch unit sales did, too).
But this catalyst may only be just getting revved up. In what’s likely part of an effort to maintain this strong momentum, Apple is reportedly working on two major new products in its other products segment.
In early march, Bloomberg reported that Apple wanted to capitalize on the success it is seeing with its AirPods by launching Apple-branded over-hear headphones aimed at the high-end noise-canceling market. These new headphones could launch as early as the fourth quarter of this year.
More recently, KGI Securities analyst Ming-Chi Kuo, who has a good track record when it comes to Apple product predictions, said (via CNBC) he believed Apple is launching a new version of its Apple Watch this fall. The fourth-generation version will boast longer battery life, a 15% larger display, and “trendy” new design.
All-new Apple headphones and the first Apple Watch with a redesigned form-factor since the device was launched in 2015 could help propel Apple’s other products segment to new heights.
The growth is in wearables
Though Apple’s other products segment includes more than wearable technology like the Apple Watch, AirPods, and Beats products, it’s sales of Apple’s wearables devices that investors should be watching closely when analyzing this segment.
In Apple’s fiscal first quarter, management said total wearables revenue during the period was up 70% year over year, driving home how central these products have been to Apple. “In fact, wearables were the second-largest contributors to revenue growth after iPhone, which is impressive for a business that started only three years ago,” said CFO Luca Maestri.
Image source: Apple.
Given the other products strong growth recently, the specific data Apple has provided about momentum in wearables, and rumors of some important new wearables product launches, it may not be much longer before Apple’s other products segment begins to rival Apple’s iPad and Mac businesses.