Apple (NASDAQ:AAPL) has been one of the most impressive growth stories in a generation. Over the past decade, the company fundamentally redefined the smartphone, reinvented the tablet PC, and built a sprawling hardware and software ecosystem that has allowed it to generate huge revenue and profit growth for its shareholders.
While that's great for investors who got in on the Apple story earlier on, the question that prospective investors are going to want to know the answer to is, are Apple's growth days over?
I think the answer is no. Here's why.
Understanding Apple's business today
The key to evaluating Apple's growth prospects is to understand where Apple's revenue currently comes from. During fiscal 2017, the company generated $229.23 billion in net revenue. Here's a look at each of Apple's reporting segments and the percentage of the company's revenue that each segment brought in:
|Segment||% of Apple Revenue|
The largest contributor to Apple's revenue, by far, is the iPhone. The easiest way for Apple to enjoy significant revenue growth is to grow its iPhone business -- if iPhone grows, then chances are good the company's overall business will grow, too.
If Apple's iPhone business is flat -- that means no growth, but no decline, either -- then it can still enjoy growth. But that growth will be much harder to come by, especially considering a large percentage of Apple's non-iPhone business is tied to the fundamentally declining tablet (iPad) and personal computer (Mac) markets.
Apple's services and other-products businesses have enjoyed nice growth in recent years, growing 16% and 23% year over year during fiscal 2017, respectively. However, since they together form such a small part of Apple's overall business, they can't carry Apple to growth on their own if the iPhone declines by even a modest amount.
So the question we need to be asking is, will Apple's iPhone business continue to grow in the years ahead?
Apple's two paths to iPhone growth
There are two ways Apple can fundamentally grow its iPhone business. The first is through iPhone unit shipment growth, and the second is through iPhone average selling price growth. During fiscal 2017, Apple's iPhone business saw a modest degree of both: iPhone unit shipments were up 2% year over year and iPhone revenue was up 3%, implying a roughly 1% boost in iPhone average selling prices for the year.
It's widely expected that Apple's iPhone business will enjoy much faster unit and average selling price growth this year, thanks to the introduction of the radically redesigned and relatively pricey iPhone X.
I think Apple's iPhone business will see another leg of both average selling price and unit shipment growth as the company brings the core iPhone X design to a lower price point, as well as to a larger-screen and even higher-priced model. Where things could get a little murky is how iPhone revenue trends following this year's product cycle and the cycle after that.
Apple will, of course, be able to bring new features and capabilities to new iPhones, and there's even an opportunity for the company to deliver some form factor changes, which consumers seem to respond well to. However, while the growth that Apple is likely to see in the current iPhone cycle and what I expect it to see in the coming cycle seem virtually guaranteed, the years beyond -- at least for iPhone -- seem less clear.
That being said, Apple is run by sharp people who understand what smartphone customers want more than possibly any other organization on the planet. The safer bet, then, is that Apple's iPhone business and, by extension, Apple's overall business isn't done growing yet.