Why is the iPhone still Apple’s most attractive product on Wall Street?

According to reports, no matter how many star-studded TV series, smart speakers and streaming services Apple launches, for Wall Street investors, what everyone wants to know most is still the sales of iPhone.

It turns out that the recent iPhone sales are not very good. In the last quarter, as its most important product, iPhone sales fell by one-fifth compared with the same period last year. If Apple wants to keep its position as the largest US company (in terms of equity), they need to release an iPhone that supports ultra-high-speed 5G networks. Only then can they succeed in the market again.

This is not an easy thing to predict, because Apple stopped disclosing iPhone sales to the outside world in 2018. As a result, analysts had to use overall revenue figures and third-party reports to try to infer the popularity of specific iPhone models in the market. This year, due to the delayed release caused by the epidemic, it will become more difficult to infer iPhone sales.

In October, Apple only began accepting pre-orders for the new iPhone 12, which means that the latest quarter’s financial report did not include iPhone 12 sales, because the financial report counts sales from July to September.

Without the figures officially released by Apple, analysts will have to rely on their own inferences. Last quarter, iPhone sales fell by 21% year-on-year. Does this mean that consumers have given up their purchase plans, or that consumers are waiting for the iPhone, and market demand will be released in the next quarter? Apple’s sales in China fell by 29% year-on-year. Does it indicate that Chinese consumers’ demand for Apple products has generally declined, or is it just because Chinese consumers are also waiting for the new iPhone 12?

The iPhone 12 conference revealed few useful clues. Apple CEO Tim Cook gave a speech in an empty auditorium, which meant that the screams from the audience at previous press conferences were gone, but the company still made the same promise as before . Cook said: "Each generation will have a new technology that enables the iPhone to achieve new functions. Today is the beginning of a new era. Today, the iPhone will begin to support 5G technology."

Those who are eager to try the 5G network may immediately find that 5G is not actually going to change people's lives as Apple claims. There is no killer application that can provide impressive services with 5G networks. The subsidies provided by operators may be the most attractive part of 5G at this stage.

If iPhone sales are not good, Apple's growth has also stalled. In the last quarter, Apple’s total revenue rose by only 1%, and the amount was only $65 billion. Although people working at home due to the epidemic began to buy Macs and students studying at home began to buy iPads, everyone was buying digital entertainment services. However, the growth of these products is unable to drive the growth of Apple's total revenue. Whether Apple can achieve sustained growth depends on the iPhone.

Apple's service revenue (including streaming media services, in-app purchases, etc.) has also increased, and the company hopes to make up for the gap caused by poor iPhone sales with service revenue. The number of paid subscribers reached a record 585 million, an increase of nearly a third compared to the same period last year. Today, in Apple's total revenue, service revenue accounts for 22.5%.

Apple has changed from a company selling electronic products to a company with a high-margin service business. Coupled with stock buybacks, Apple's stock price has been boosted.

However, there are currently two unfavorable factors that threaten Apple's stock price. First of all, more and more app and game developers have expressed dissatisfaction with the "Apple tax", which is the commission that Apple charges for paid apps and in-app purchases. Secondly, the U.S. Department of Justice intends to require Apple to use Google search engine as the default search engine on Apple devices. Currently, in order for Apple to do so, Google needs to pay it $12 billion annually, equivalent to a quarter of Apple’s service revenue . This means that Apple does almost nothing every year and has $12 billion in revenue. Although Apple is also developing its own search function, it is almost impossible for the new function to bring such a high net profit.

For the above factors, the speed brought by iPhone 12 and 5G is the most important part of its hardware business, although Apple may not admit it.