On June 29, 2007, at 6:00 p.m. PDT, the first Apple (AAPL +0.63%) iPhone went on sale at Apple stores in the U.S. "iPhone ushers in an era of software power and sophistication never before seen in a mobile device, which completely redefines what users can do on their mobile phones," Apple said in its press release announcing the device.
The audacious statement proved to be spot on. The iPhone went on to play a primary role in turning Apple into the world's most valuable publicly traded company, and it sparked a mobile revolution.
Ten years after the iPhone's launch, the product dominates Apple's business. Here's a look at how important the iPhone is to the tech giant today.
iPhone 7 Plus. Image source: Apple.
A $140-billion business
It would be difficult to overstate just how transformative the iPhone has been to Apple's business. Perhaps the best way to put its significance into context is to look at how it has impacted Apple's revenue. Apple's revenue has risen from $21 billion in the 12 months leading up to the iPhone's launch to $220 billion in Apple's most recent trailing-12-month reported period.
Further, of this $220 billion in annual revenue, $140 billion was derived from iPhone sales. In other words, not only has Apple's total revenue increased 10 times over since the iPhone's launch, but the iPhone alone now accounts for 64% of the tech-giant's annual revenue.
Data source: Company SEC filings. Chart source: Author.
Before the iPhone, Apple's revenue was primarily driven by its Mac and iPod sales. But iPhone has since cannibalized iPod sales and dwarfed Mac sales, which now add up to just 11% of total revenue.
Of course, the impact of iPhone on Apple's business can be seen in other areas, as well -- particularly Apple's services business. The iPhone led to a revolution in mobile applications, as third-party apps exploded in popularity and created new opportunities for many industries and sectors.
Thanks to the App Store's wild success, Apple's services business has grown into a major driver for the company. In the trailing 12 months, services revenue increased about 20% year over year and accounted for 12% of Apple's total revenue -- second only to iPhone revenue. And the App Store remains a strong driver for the company's services segment today. App Store downloads soared 70% year over year in the trailing 12 months.
Additionally, Apple's iPad segment is arguably a byproduct of the iPhone launch. Not only do the Apple tablets run on the iPhone's operating system, iOS, but iPads also were able to run iPhone apps from the very beginning. The iPad accounted for 8% of Apple's trailing-12-month revenue.
What's next?
While the iPhone's role in Apple's success over the past 10 years is undeniable, investors can't help but wonder what major catalyst for Apple's overall business can come next. After all, iPhone revenue increased just 1% year over year in Apple's most-recent quarter -- a rate that represents a rebound from declining iPhone revenue in 2016.
Data source: Company SEC filings. Chart source: Author.
Sure, Apple began delivering its Apple Watch for the first time in the beginning of 2015, but the product is still wrapped up in Apple's "other products" segment, which only accounts for 5% of revenue. In addition, given the way Apple has designed the Apple Watch to be highly dependent on the iPhone, it's unlikely that the device's sales will ever come close to rivaling iPhone.
Will Apple be forced to rely on its services segment for growth? Or will it launch another blockbuster product?
On the other hand, while the iPhone isn't a major growth driver for Apple today, investors would be wise to pay close attention to the segment, which represents 64% of Apple's top line. The company is undoubtedly laser-focused on maximizing the key segment.
