Apple: 'Single Product Company'... It's Not The iPhone

Jun. 15, 2017 1:15 PM ETApple Inc. (AAPL)79 Comments


  • Someday, the iPhone will be disrupted by an even better user interface. We are still long Apple despite this expectation.
  • Services is targeted to double in the next four years. But even longer term, we believe it will be more important to Apple than the iPhone.
  • The services ecosystem is the "single product." The iPhone, iPad, Mac, Watch, TV, and HomePods are accessories. Hardware is a means of accessing the real product.

We believe Apple (NASDAQ:AAPL) is a "single product company," but that product is not the iPhone.

Someday, the iPhone will likely get disrupted by a new user interface, probably related to augmented reality (AR). But we don't think this will impact Apple as much as some might expect because the iPhone is not the true product people are buying.

We see the services ecosystem functioning as the single product. All the hardware, including the iPhone, are accessories that give access to the ecosystem.

The ecosystem of services is much harder to disrupt. It is made of so many components, developers, and partners. It provides so much utility for so many people. Even if the way we access it changes, the ecosystem will continue to provide an incredible experience.

But coming back to the current reality of iPads and iPhones to access the ecosystem. We see iPhone demand remaining flattish over the next couple of quarters, and then seeing a catch-up period when the next iPhone launches. And we expect iPad demand to bottom in 2017 with a five-year refresh cycle starting in 2018, as the 2013 iPad Air becomes a legacy piece of hardware.

A Single Product Company

It has come to our attention that Apple is viewed by some as a "single product company." We believe Apple CEO Tim Cook sees that opinion becoming more widespread, coaxing him to make comments like:

"Our Services revenue topped $7 billion, and it's well on the way to being the size of a Fortune 100 company. We're very happy to see the deep level of customer engagement with the Apple ecosystem across all of our services." - CEO Tim Cook 2Q17 Earnings Call


"Demand for AirPods significantly exceeds supply, and growth in Beats products has also been very strong. In fact, when we combine

This article was written by

SMRE is authored by a CFA Charterholder, who worked in Sell Side Equity Research for 4 years.SMRE's philosophy on investing has slowly evolved over time. Some of the lessons include: 1) A good nights sleep comes from investing in companies you understand and believe in. 2) "Time in the market beats Timing the market". 3) Make sure your investing style matches the person giving you a recommendation (i.e. long term, short term, etc.) Research is an educated guess on future outcomes. SMRE is here to share our assumptions on some companies we believe in. We hope you will challenge our assumptions! Recommended Reading List - A collection of investing and non investing books we recommend Made In America - Sam Walton Tuesdays with Morrie - Mitch Albom The Happiness Equation - Neil Pasricha Good to Great - Jim Collins Influence - Robert CialdiniTipping Point - Malcolm Gladwell

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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