Apple moves to new growth with Services and Wearables

Yesterday Apple released last qtr revenues and managed to grow revenues compared to the prioe year reversing year on year contraction.

Wall Street had expected Apple to generate around $53.5 billion in revenue for its fiscal third-quarter, pretty much square in the middle of Apple’s own estimations from last quarter.

The company in fact posted $53.81 billion in revenue, just about 1% up from from the $53.3 billion it brought in during the same period last year, and enough to stop the company’s multi-quarter revenue slide. Even so quarterly earnings per diluted share were $2.18, down 7 percent.

Howver investors seemed pleased with the news, with Apple’s stock price up about 4% on its closing price to $217.60 in after-hours trading.

Apple is in the middle of an awkward transition. For a decade, the iPhone has been its cash cow, turning Apple from a successful computer company into one of the richest companies in history, briefly flirting with a $1 trillion market capitalization. But it has struggled to replicate the sheer success of the iPhone with follow-up products such as the iPad and Apple Watch. That being said, the scale at which Apple now operates is unlike most other hardware companies in history: Even its smallest business line is a roughly $25-billion-per-year business, which would squarely put every business line Apple runs into the Fortune 200 as a separate company.

For the first time since 2012 the iPhone product line represented less than 50% of revenue. At the peak it was close to 70% of sales.

The slow growth in iPhone units sales has been partly off set by stellar growth in both Services and Wearables.

Apple’s services business—which includes sales of apps, games, movies, music, cloud storage, and Apple Pay fees—has been the company’s second-largest business for the better part of three years now. Services accounted for $11.46 billion in revenue this quarter, a 20% jump over the same period last year. It’s worth noting, though, that there was only a minor bump in revenue when comparing services revenue over consecutive quarters: the business unit has been on a tear in recent years, and investors will want to make sure that this doesn’t indicate a slowdown heading into the second half of the year.

The accessories business line, which includes sales of Apple’s AirPods wireless headphones, the Apple Watch, Beats headphones, the HomePod speaker, and other accessories, generated $5.525 billion in revenue for the quarter, a jump of nearly 50% over the same period last year. The argument that these have actually been the most exciting products that Apple has made in recent years seems to be ringing true. On the company’s earnings call, CEO Tim Cook said it was “an absolutely blow-out quarter for wearables,” adding that its services and wearables business alone is now the size of a Fortune 50 company.

In summary Apple is starting to thrive again, even as the iPhone sales wilt a little.

Hold.

Listen to investor conference call on Apple IR site.