About One-Third of Apple’s Revenue to Be Upgraded This Fall

About One-Third of Apple’s Revenue to Be Upgraded This Fall

Apple will host a virtual event on Sept. 15. We expect the company to launch a new Apple Watch and the next generation iPad Air. Next month, the company will likely host a second event to unveil their lineup of 5G iPhones, among other offerings. Collectively, we estimate that products comprising about one-third of Apple’s revenue will be upgraded over the next two months. These new products should drive revenue growth for the company during the pandemic and beyond.

September 15 Event

At next week’s ‘Time Flies’ event, we expect Apple to introduce the Apple Watch Series 6, a new generation iPad Air, and over-the-ear AirPods. On top of these three products, the company could also announce AirTags, which will help users locate valuables.

  • Apple Watch Series 6
    • We estimate the Apple Watch lineup currently accounts for about 4% of the company’s total revenue.
    • Per Loup estimates, about 9% of iPhone owners have an Apple Watch today. Over the next 10 years, we believe Watch adoption among iPhone owners could grow to more than 50%, which would imply an average of 50m annual Apple Watch sales, compared to our estimate of 31m this calendar year.
  • iPad Air
    • With the iPad segment representing about 11% of the company’s total revenue, we estimate the iPad Air is about 4% of total revenue.
    • The timing of the release could not be better given the recent increase in demand from students and educators having to learn and teach from home. As a reminder, iPad growth went from -10% y/y in March 2020 to 31% y/y in June 2020.
  • AirPods Studio
    • This has been a long time in the making since the company’s 2014 acquisition of Beats, with AirPods Studio set to mark the first pair of Apple-branded over-the-ear headphones. While AirPods Studio will be a rounding error in terms of revenue contribution, they represent yet another example of the company integrating a new product into its hardware-software ecosystem.
  • The Wild Card
    • AirTags are small, attachable tracking devices that help locate misplaced items like your car keys or wallet. AirTags’ primary competitor will be Tile.

October Event

Apple’s premier fall event is expected in October and will likely feature the company’s first 5G phones, as well as service bundles.

  • iPhone 12
    • The iPhone represents about 50% of Apple’s revenue. With the iPhone 12 lineup release, about half of the overall iPhone lineup will be upgraded, equating to about 25% of total revenue.
    • Investors should temper their optimism for iPhone 5G demand over the next year, as cellphone carriers’ global 5G coverage remains limited.
    • That said, 5G will eventually live up to the hype. We believe that beginning in late 2021, 5G will usher in a 3-year iPhone upgrade cycle that will drive low teens annual iPhone revenue growth during that period.
  • Service Bundles
    • The company is expected to unveil new service bundles, which will include varying combinations of Apple Music, Apple TV+, iCloud, and Apple News.
    • We estimate these four services combined represent about 5% of the company’s revenue.
    • Assuming the average Apple services customer is paying Apple between $8-$9 per month, any bundle priced over $9 per month per user will be positive for Apple’s revenue.
    • Service bundles will be a step toward the company potentially offering a 360 hardware and service bundle. Although such a bundle is likely a few years away, it is something only Apple can do.