Apple Inc. (NASDAQ:AAPL)’s IPhone: A Star on the Verge of Turning into a Cash Cow?

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By Ross Schwartz on December 15, 2014 Company

Apple Inc. (NASDAQ:AAPL)’s iPhones have over time become an allegory of the consumer public’s purchasing habits and of how well-versed the company is with translating a need into tangible technology.

Since its introduction to the market in 2007, Apple Inc. (NASDAQ:AAPL)’s iPhones brought the tech giant significant annual growth in sales. The fundamental role that they play in the company’s business cannot be ignored nor denied as they have proven to be Apple Inc. (NASDAQ:AAPL)’s most profitable product. However, being the market star that they are, will they eventually lead Apple Inc. (NASDAQ:AAPL)’s stocks’ downfall?

One might argue that without iPhones, Apple Inc. (NASDAQ:AAPL)’s growth and sales will not be as catapulted as they are currently. In the company’s fourth quarter of the 2014 fiscal year, iPhone sales comprised 56% of Apple Inc. (NASDAQ:AAPL)’s total revenue, which shows the segment’s remarkable contribution to the company. As if that was not enough, it is estimated that come Apple Inc. (NASDAQ:AAPL)’s first quarter, iPhone sales may occupy 75% of their total revenue.

This figure was arrived at using long-time Apple Inc. (NASDAQ:AAPL) analyst Ming-Chi Kuo’s positive estimate for 71.5 million iPhone sales in the first quarter up to 40% from the year-ago computation. This goes with the assumption that the iPhone line maintains its selling price on average from the year ago quarter, and that the average growth of Apple Inc. (NASDAQ:AAPL)’s other segments is conservatively in the single digits.

Such performance is without a question outstanding. However, these high figures may well prove to be difficult bases of comparison come the year 2016.

In theory, from the increase in sales of the iPhones annually, the probability of yearly drops in revenue for Apple Inc. (NASDAQ:AAPL) becomes higher.

The demand for an iPhone with larger display screens has been long overdue before the iPhone 6 line up came out. While analysts have been bullish on their estimates for them, Apple Inc. (NASDAQ:AAPL)’s iPhone 6’s signs of market performance does not seem to be meeting expectations.

If Apple Inc. (NASDAQ:AAPL)’s iPhone sales will indeed make up 75% of their total revenue in 2015’s first fiscal year, the slightest iPhone sales decrease in the subsequent year for the same quarter will have a monumental impact in the company’s business results. The sector’s sales decline will be magnified due to its large share in the company’s earnings.

Apple Inc. (NASDAQ:AAPL) may find it a struggle in avoiding year-over-year earnings dips if iPhone sales decline come 2016. Given iPhone’s not up to par performance so far, this is most likely possible.

While getting into Apple Inc. (NASDAQ:AAPL)’s stocks may be risky due to the unsure future of their iPhone sales, the company still has other sectors that may save their revenues. The company’s app sales still comprise a small percentage of their total earnings, but they are rapidly growing. Who knows, Apple (NASDAQ:AAPL) Pay may prove to be accretive to the company. In addition, the performance of the iWatch is yet to be fully known.