Services Steal the Show as Apple's Hardware Sales Plateau

On Tuesday at 10 a.m. Pacific Time, Apple is holding its biggest hardware event of the year, which will be centered around the iPhone 17 line-up, which is all but certain to include the all new iPhone 17 Air, a slimmer version of Apple’s popular smartphone. The event with the tagline “awe dropping” will feature more than just the iPhone presentation, though, as rumors indicate that Apple will also introduce new models of the Apple Watch and AirPods Pro.

The event comes at a difficult time for Apple, which has been under intense scrutiny for its AI strategy, or lack thereof, as the company appears to be falling behind the competition in terms of AI investments and development. Last month, Bloomberg’s Mark Gurman reported that Apple is now exploring the use of Google’s Gemini model in the revamped, AI-powered Siri – a move that some view as smart and others view as an admission of defeat in the attempt to build Siri’s AI capabilities in-house.

Perhaps more importantly, Apple’s hardware business, with the iPhone at its core, has stagnated in recent years, with the company’s long underestimated services business the last remaining driver of any significant growth. Between 2022 and 2024, Apple’s revenue from services grew 23 percent, while iPhone sales declined 2 percent and sales of other hardware dropped 15 percent. The company’s services, i.e. iCloud, App Store, Apple Music, Apple Pay, Apple TV+ etc. are now bigger than all of Apple’s non-iPhone hardware combined.

The iPhone remains at the heart of Apple’s business. And while its share of the company’s total revenue has gradually declined from a peak of 66 percent in 2015 to 51 percent in fiscal 2024, the iPhone is the key to Apple’s entire ecosystem. iPhone users drive the lion’s share of Apple’s services revenue as well as sales of other Apple devices. That’s why the iPhone launch event is undoubtedly the most important day in Apple’s calendar.