Back in 1986 Apple launched an ill-fated line of clothing in the hope it could persuade loyal users to see it as more than just the maker of home computers.
And not just clothing. It was once possible to buy an Apple cool-box for the beach, for days out when you might also take to the seas on your Apple windsurf board. Really.
These products represented Apple’s early attempts to diversify its business and leverage its world-leading brand. While they were ultimately unsuccessful, and a little comical, they demonstrate how the business has always been seeking to cast itself as more than just a computer hardware company. That spirit is alive and well today, of course, with Apple’s 21st century attempts proving wildly more successful than those from the 1980s.
Whenever Apple updates the market - as it did last week - most of the attention is on how well the company is doing at building its business beyond its core computer product range, most notably the iPhone. A year ago, there was much fretting at an apparent slow-down in sales of iPhones with falls in developing markets like China a particular concern.
Observers wondered whether we had now reached ‘peak iPhone’ - the point at which most of the people who were going to buy a handset had done so, leaving no new worlds to conquer. After years of regular blockbuster releases of new handsets users were now taking much longer to upgrade. As each new phone came along it appeared harder to convince tech-savvy consumers that the upgrade was worth the extra cost, which just went up and up.
Much hope was invested in Apple’s services businesses, with revenue from Apps, iTunes, cloud services and AppleCare insurance plans intended to take up the slack as iPhone sales began to plateau. Wearable tech, including the popular Apple Airpod headphones, is another growth area.
The numbers last week gave encouragement that the strategy is working. Revenue from the services business has doubled in three years and, taken with the wearables division, now makes up more than a quarter of the Apple business and is growing as a proportion of the whole.
It doesn’t end there. Prepare to be bombarded with ads for AppleTV, an entertainment subscription service of original content to rival Amazon Prime and Netflix, as well as for a computer game subscription service Apple Arcade.
As it turned out, there was also some pretty good news last week on iPhone sales too, proving there’s still some life in that old dog. The iPhone 11 and 11 Pro are selling better than expected and Apple expects 2019 sales to be near 75million, the top end of its forecast range. In 2020, Apple is expected to launch 5G versions, giving sales another boost.
It led some market-watchers to hail 2019 as a ‘goldilocks’ moment for Apple, when everything aligns resulting in booming profits and share price.
The next great push for Apple is rumoured to be a shift in how we own iPhones. Envisaged is a subscription model whereby users effectively rent their handset and upgrade at regular intervals without a large upfront cost. This partly happens already, with users using payment plans to spread the price of a new iPhone and then trading in when a new one is released. A full subscription offering would entrench this and help massage out the high headline price of a new phone.
From an investment point of view, this would be an important change. It would help turn the iPhone from a luxury tech purchase to something more like an ongoing overhead cost, both for individuals and businesses. In other words, Apple would move towards being more like a consumer staple company than a hardware company or even a services company.
The value of consumer staple companies is often much higher because investors see them as near recession-proof, able to churn out sales come rain or shine.
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