Apple's Services Business Grows to $12.5 Billion in Quarterly Revenue

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Apple CEO Tim Cook

The company is two days away from the launch of its Apple TV+ subscription video service.

Two days ahead of the launch of its ambitious new video streaming service, Apple on Wednesday revealed that the sale of services now make up nearly 20 percent of its business. 

The tech giant, which has long relied on the sale of devices like iPhones and Mac computers to drive its business, earned $12.5 billion from non-hardware offerings like Apple Music, Apple Pay and iCloud during the three-month period from July to September. That represents 18 percent growth and an all-time high for the segment compared with the same period last year, but products continue to be the main driver for the company. During the fiscal fourth quarter the company had $51.5 billion in net sales from devices, up just short of 2 percent from last year.

All told, Apple businesses brought in $64 billion in sales during the period, up nearly 2 percent from last year. But iPhone sales, long the company's bread and butter, declined 9 percent to just short of $7 billion. Profits fell 3 percent to $3.05 per share. 

"We concluded a groundbreaking fiscal 2019 with our highest Q4 revenue ever, fueled by accelerating growth from Services, Wearables and iPad," Apple CEO Tim Cook said in a statement. "With customers and reviewers raving about the new generation of iPhones, today’s debut of new, noise-cancelling AirPods Pro, the hotly anticipated arrival of Apple TV+ just two days away and our best lineup of products and services ever, we’re very optimistic about what the holiday quarter has in store."

Over the last two years, Apple has been putting the pieces in place for Apple TV+, its forthcoming $5-per-month subscription video service. The iPhone maker hired Sony veterans Zack Van Amburg and Jamie Erlicht, assembled a staff of programmers in Los Angeles and spent at least $1 billion to buy up programming such as The Morning Show starring Jennifer Aniston and Reese Witherspoon. TV+ is set to launch Friday with four series, a documentary and some kids programming. Though early reviews of originals like Morning Show have been mixed, Cook noted on a call with investors that "there's so much to look forward to here for lovers of great storytelling." 

While TV+ is part of Apple's plans to grow its services revenue, the service is also being given away for free for a year to customers who upgrade certain devices including the iPhone. It's a promotional move that will help to boost subscriptions but also means it may take a while for the offering to earn significant revenue. "It's a gift to our users," Cook said of the promotion. "We're really proud of the content. we'd like as many people as possible to view it. This allows us to focus on maximizing subscribers, particularly in the early going, so we feel great about doing that. I think it's a bold move." 

The exec added, "The price is very aggressive as well." 

Apple shares closed the day flat at $243.26 and were up less than 1 percent during after-hours trading on the Nasdaq.