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One word: services

Apple is selling fewer iPhones, but its earnings were actually pretty great

Apple’s earnings were actually pretty great

Apple did something that not too long ago seemed impossible: It turned in a pretty good quarter of earnings even though sales of the iPhone — its cash cow—were down 13 percent and sales in China were down 30 percent.

That’s because Apple saw big growth in a segment that’s going to keep growing even in a world where smartphone sales growth has ended: services, like iCloud and Apple Music.

In the past three months, the company made $6.3 billion from services. That marks a 24 percent increase from the same time last year, and 6 percent from the previous quarter.

It’s still a rounding error on Apple’s overall business that generated $46.9 billion in revenue and $9 billion in profits in the quarter, but in an era when much of its hardware is in decline — Macs down 17 percent, iPads not growing, “other products” including Apple Watch down 22 percent — this is good news.

The reason that services revenue matters so much, even though it’s a fraction of what Apple pulls in from its iPhone business, is because Apple’s days of iPhone dominance are over. The global smartphone market has been tapped, and there are lots of quality competitors undercutting Apple on price. Moreover, Apple appears to have backed away from the car market, so the era of selling greater and greater numbers of physical products appears to be over — for now.

That doesn’t mean Apple won’t keep shipping great stuff, but it’s clear the growth potential now is in services.

Apple stock fell more than 2 percent after-hours, likely on the poor China numbers, but if you were wondering if Apple could be more than just an iPhone company, you got an encouraging answer today.

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