Apple’s Services Segment Slows to 5.5% Growth Rate

Hardware’s growing — specifically, the phones —  but for Apple, services are slowing.

Drilling down into the Q2 results, the tech giant’s iPhone revenue was $51.3 billion, up from $50.6 billion a year ago, against a backdrop where industrywide smartphone sales declined.

The demand for hardware was not uniform — Mac sales slid 31% year over year to $7.2 billion.

CEO Tim Cook said that in a quarter that saw total net sales slide 2.5% to $94.8 billion, demand for hardware beyond iPhone (wearables revenues were down 1% year over year to $8.7 billion) was impacted by “macroeconomic challenges.”  Those challenges have led to consecutive quarters of revenue declines.

Payments and Savings Accounts in the Crosshairs

Services revenues grew to $20.9 billion, up 5.5% from last year. That’s a bit of a slowdown from the 14% growth rate logged in all of 2022.  The company now has 975 million paid subscriptions across its App Store, Apple Music, iCloud and payment services.  That number had been 935 million at the end of last year. With a nod to payments, Cook took note of Apple Pay Later’s debut during the quarter, and the introduction of the high-yield savings accounts on offer to Apple Card customers.

“We’re very pleased with the initial response,” on the high-yield savings account, Cook said.

See more: Apple’s Entrance Into Savings Accounts May Cost Neobanks and Traditional FIs

CFO Luca Maestri said that the installed base of iPhone users grew to a “new all-time high and was up in all of our geographic segments.”    In describing some of the puts and takes within the services segment, “as we saw in recent quarters, certain services offerings such as digital advertising and mobile gaming continue to be affected by the current microeconomic environment,” said the CFO.

But he maintained the installed base of more than 2 billion active devices “represents a great foundation for future expansion of our ecosystem.”

Later in the call, Maestri said that within services, “cloud is an area that continues to grow very consistently. Users want to store more photos and videos and more content on their devices.”

Global Markets Beckon

Within China, Cook said, where revenues slipped 3% year over year (but up in constant currency), business accelerated from the December quarter, in tandem with the economy’s reopening. China also has “good metrics” in terms of new buyers, he said, as with the Mac, about 6 in 10 customers are buying the Mac for the first time.  Three out of four customers are buying the firm’s wearables/watches for the first time.

And in India, Cook said, among other emerging markets, demand for hardware has been strong.  India as market has seen double-digit growth year over year, and as Cook said, with the launch of retail presence in that market, “there are a lot of people coming into the middle class … and India is at a tipping point … given our low share and the dynamics of the demographics, there is great opportunity in those markets.”

Looking ahead more generally, Cook said, “I think we can do better on everything … if you look at the number of active devices  and the growth of active devices, I think our services are underpenetrated in a number of different ways. And the way that I look at it is there’s opportunity in many of them.”