With Apple posting a sluggish outlook on iPhones, the company has shifted its focus to services in a bid to boost its results.
The update comes after major TV manufacturers, including Samsung (KRX:005930), LG (KRX:066570) and Vizio, announcing that the service would be available on their 2019 models. Apple hasn’t revealed when the service be available on its rivals’ platforms.
However, Samsung said that it will offer the iTunes App on its 2019 Smart TV platform beginning in the spring while the app, along with AirPlay service, will be available on the 2018 Smart TV models through a firmware update. The company said that the availability of the iTunes service is an “industry first” and that the app would be available in more than 100 countries. Of note, AirPlay service lets consumers watch and browse TV shows and movies through its platform.
“Bringing more content, value and open platform functionality to Samsung TV owners and Apple customers through iTunes and AirPlay is ideal for everyone.” Won-Jin Lee, executive vice president at Samsung Electronics, said in the release.
For Apple, it’s certainly a shift in strategy as this is the first time the company is rolling out its services on rival TV platforms.
Analyst Rene Ritchie said in a tweet that the partnership with Samsung is geared towards the original TV content that Apple is set to roll out by March. It has long been reported that Apple has been spending over US$1 billion on producing original shows.
Monday’s announcement comes closely on the heels of Apple CEO Tim Cook’s letter to shareholders where the company revised its guidance for the first quarter of 2019 due to low sales of iPhones.
Cook highlighted numerous reasons for the company lowering its guidance, which include “economic weakness” in some emerging markets like China, a strong US dollar and supply constraints for some of its products.
“In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad,” Cook said in the letter.
Cook stressed on the “lower than anticipated” iPhone revenue, mainly in China and also in developed markets, as one of prime reasons for the revenue decline.
While Cook indicated several reasons for the lack iPhone sales, analysts believe the competition from rivals, particularly manufacturers in China, as the reason for people skipping new products from Apple.
Neil Shah of Counterpoint Research explained in a series of tweets that while smartphone sales in China are set to decline around 11 percent, iPhone sales are set to decline 15 percent to 17 percent year-over-year.
“Chinese brands are are out-competing/out-marketing Apple on design, mobile-first innovations & value prop which is being recognized by brand-conscious Chinese consumers,” Shah said. “The current iPhones are great for older gen iPhone users but not enuf to attract mature non-iPhone users.”
5/ Another reason: the rise of HOV (Huawei OPPO & vivo) in China.
Huawei's performance has been phenomenal in China. Mate Series is a serious alternative to premium iPhones & a de-facto business phone, especially among males.
— Neil Shah (@neiltwitz) January 3, 2019
Further, Shah said in a blogpost that Apple’s problems are compounded by the fact that the company depends heavily on iPhones and two geographies for its revenues. Shah said that 63 percent of its corporate revenues and 64 percent of its corporate profits are derived from iPhone business. In terms of geographies, 43 percent of the company’s revenues are said to be from the Americas, with the US contributing a major portion of sales, while Greater China generates 20 percent of its revenues.
“There is no easy fix for Apple as situation is being compounded with IP infringement ban, Trade war invoking a sense of nationalism and hard to correct the pricing mistake immediately – which means accepting the pricing mistake and in turn permanently damaging the brand equity,” Shah said in the blogpost.
While the situation painted a bleak picture for Apple, Cook highlighted that the company’s services, including the iMac, iPad and wearables grew 19 percent year-over-year.
“Services generated over $10.8 billion in revenue during the quarter, growing to a new quarterly record in every geographic segment, and we are on track to achieve our goal of doubling the size of this business from 2016 to 2020,” Cook said.
Cook said that the company expects to post an “all-time record” earnings per share and that it will be looking into various initiatives to boost its results.
“We can’t change macroeconomic conditions, but we are undertaking and accelerating other initiatives to improve our results,” he said.
Hanish Bhatia of Counterpoint Research said that Apple’s move to offer its iTunes app on Samsung TV is a shift towards the company focusing on its services division.
“The move demonstrates Apple’s shift toward developing into tech-and-media-services company after bearish outlook on device business in the recent revenue warning,” Bhatia said in a tweet.
Following the update, shares of Apple were down 0.22 percent to close the trading session on Monday at US$147.97. The stock has a “Moderate Buy” ranking on TipRanks with an analyst target price of US$181.07 representing an 22.40 percent upside from its current price.
However, Apple has a “Sell” ranking on TradingView with 17 verticals against, eight in neutral and three in favor.
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Securities Disclosure: I, Bala Yogesh, hold no direct investment interest in any company mentioned in this article.