As consumers have run out of reasons to upgrade to a new phone each year, sales of Apple’s iPhone have plateaued. In the 2018’s fourth quarter, Apple sold 64.5 million iPhones—down from 73.2 million year-over-year. Meanwhile, competition is on the rise, with companies like Huawei having multiple quarters where it passed Apple in number of phone shipments. Preempting the bad press, in 2016, Apple even stopped sharing opening week sales numbers for the iPhone.
Smartphone sales woes aren’t unique to Apple. Hardware makers like Samsung have felt a similar sting, withprofits pivoting downward due to a slump in wireless sales. The release of the Samsung Galaxy Fold was expected to help the company’s financials, but broken phones and delays largely left the company with a heap of bad press.
With consumer buying fewer phones across the board, Apple’s credit card play reveals a larger strategy. “It’s worth considering the big picture, which for Apple is driving demand for its entire ecosystem,” says Graham Tanaka of Tanaka Capital Management. “Many focus on the iPhone but Apple’s services offering is growing very rapidly.”
During the Apple credit card’s announcement, the company also announced a news subscription service, gaming subscription service and TV streaming subscription service. Tanaka expects the Apple credit card to help expand Apple’s ecosystem, even when buyers aren’t purchasing an Apple product. “You can expect consumers with the card to bug stores to add Apple Pay so they can get that 2% back,” he says.
Apple Card could bring an uptick to the company’s hardware business too, says Tanaka. “Consumers may not delay subscribing to Apple Music [as they wait for Apple Card to become available], but I imagine many buyers putting off on buying an expensive Mac or iPhone so they can get 3% back,” he says. Using the current iPhone lineup as a guide, Apple Card users would get 3% cash back on their purchases at Apple using the Apple Pay app, saving shoppers between $22.48 (for the least expensive iPhone XR) and $43.47 (for the most expensive iPhone XS). It’s possible that these rewards will entice shoppers to snag other items, like Apple’s increasingly popular AirPods.
Computer sales aside, Tanaka believes the Apple Card will offer the company something more lucrative than a one-time phone purchase: recurring revenue from customers fully bought into the Apple ecosystem. “The biggest question for those considering the card is, ‘Do you want your entire life tied to Apple’s ecosystem?,'” says Tanaka. “I think for many people, the answer is ‘Yes.'”
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