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1 Sign This Small Apple Segment Looks Poised for More Strong Growth

By Daniel Sparks - Dec 18, 2017 at 2:36PM

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One of Apple's newest products is seeing strong demand this holiday season.

While growth has returned to Apple's (AAPL -2.98%) iPhone segment, the growth is slow. Even if the tech giant's recent launch of the iPhone X spurs an unusually large upgrade cycle, meaningful growth in this segment can't persist forever. After all, Apple is currently raking in a whopping $141 billion in annual iPhone revenue, bringing smartphone sales to 62% of total revenue.

Considering its low-single-digit growth recently and the huge portion of revenue the product segment already contributes, rising iPhone sales may not be enough for investors to award Apple a higher valuation multiple. Investors will likely want to see signs of consistently strong growth in other product segments. Fortunately, one segment has seen accelerating, double-digit growth recently -- and it's looking particularly promising this holiday season.

Apple products charging on a wireless charger

Image source: Apple.

The perfect Christmas gift?

I'm talking about Apple's "other products" segment, which includes revenue from Apple TV, Apple Watch Beats products, AirPods, iPod, and accessories. Specifically, Apple's AirPods product looks like it's a hot gift this holiday season, extending its streak of strong demand since the product was released last December. 

Apple has already sold out of the device through January, as MacRumors pointed out on Sunday. Online orders for AirPods are showing estimated delivery times in early January on Apple's website in the U.S., Australia, Canada, France, Germany, and the United Kingdom, among others.

The earliest delivery date for the wireless headphones on Apple's U.S. website for orders made today currently shows Jan. 5 for expedited shipping and Jan. 9 for free shipping. And AirPods are also out of stock at most Apple retail stores, and other major retailers for Apple products, including Best Buy, Target, Walmart, and more, according to MacRumors.

Popularity for AirPods this holiday season isn't surprising. The new device has been a hit with consumers since its launch. This summer, Apple said it was seeing "incredible enthusiasm for AirPods" and a "strong level of demand."

AirPods lying on an iPhone

Image source: Apple.

Raising the stakes, with a $159 price tag -- a price significantly below many Apple products -- AirPods likely make a good gift for the holidays. While Apple probably anticipated significant demand for the device during this period, delayed shipment times suggest management may have underestimated its popularity.

Since the product is included as part of Apple's other products segment, management doesn't provide specific sales numbers for the device. But it's clear that it's doing well.

In the company's most recent quarterly conference call, Apple CEO Tim Cook said its entire wearables business (including the Apple Watch), saw sales increase 75% year over year during its fourth fiscal quarter and during fiscal 2017. 

Growth in wearables

Of course, this also highlights the overall success of Apple's wearables products -- an important category of next-generation products that investors can look to for future growth opportunities. Beyond 75% year-over-year growth in combined sales of Apple Watch and AirPods during the quarter, Apple also said in its most recent earnings call that Apple Watch unit sales jumped more than 50% year over year for the third quarter in a row.

An excited customer holds an Apple Watch 3 Series in a box at an Apple Store

Image source: Apple.

Growth in AirPods and Apple Watch revenue is driving strong, double-digit growth in Apple's other products segment. Other products revenue in Q4 climbed 36% year over year and 16% during fiscal 2017. The segment accounted for 6.1% of total revenue.

Fortunately, Apple's AirPods product isn't the company's only hope for future growth beyond iPhone. The tech giant is seeing rapid growth in other smaller product segments, too. Services and Mac revenue increased 23% and 13% year over year in fiscal 2017, respectively. All three of these smaller segments are easily growing faster than the 3% year-over-year increase in iPhone revenue Apple garnered in fiscal 2017.

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