Apple’s iPhone business is the company’s biggest division, but it’s the wearables segment, which includes AirPods, Apple Watch, and Beats headphones, that holds huge promise.
Apple’s third quarter global wearable shipments soared 196% year-over-year to 29.5 million units, market research firm IDC said on Monday.
Apple accounted for 35% of the 84.5 million wearables shipped last quarter, which was up from 43.4 million the same period in the prior year.
Shipments by rivals including China-based Xiaomi and Korean conglomerate Samsung also soared during the period. But with 12.4 million for Xiaomi and 8.3 million for Samsung, they lagged Apple.
The growth in Apple’s wearables business is coming at a good time. Sales in Apple’s all-important iPhone division slid in the fiscal year ending in September, to $142.4 billion from $164.9 billion in the previous fiscal year.
Meanwhile, Apple’s wearables, home and accessories division, which includes its wearables, HomePod smart speaker, and a variety of connectors, grew to $24.5 billion last year from $17.4 billion in the 2018.
Apple doesn’t disclose revenue from its wearables, but analysts say it’s significant. Loup Ventures analyst Gene Munster puts the number at $20.8 billion —a 58% increase year-over-year.
A growing giant
“Apple’s Wearables and Hearables business has become a very big part of Apple’s continued growth strategy,” says Creative Strategies analyst Tim Bajarin, using the industry jargon for wired and wireless headphones, as well as earbuds.
In addition to creating more revenue for Apple, wearables also increase customer loyalty for its products, Forrester Research analyst Frank Gillett says. Apple designed Apple Watch and AirPods to work seamlessly with its iPhone, Mac, and iPad, making the wearables both more useful and harder for customers to give up.
“Wearables are a source of competitive advantage and differentiation because they’re making themselves more valuable to customers and ultimately making it less attractive to switch to another option,” Gillett says.
But that may not stop everyone. With the wearables market growing so quickly, major Apple competitors including Samsung, Google, and Huawei will try to increase their marketshare, particularly by undercutting Apple by selling cheaper technology for more budget-conscious shoppers.
At some point, revenue from Apple’s wearables is expected to surpass that of some older businesses. “I think it is possible to see wearables revenue exceeding the Mac within the next fiscal year,” says IDC research director Ramon Llamas.
Munster forecasts that Apple’s wearables will account for 11% of total revenue next year, compared to 10% for the Mac. Last fiscal year, Apple’s wearables accounted for about 8% of Apple’s $260.2 billion in revenue, compared to 10% for the Mac.
The march to $100 billion
And that’s only the beginning. Munster says wearables could grow 20% annually over the next five years. If so, by 2025, it would be a $75 billion business, accounting for 20% of Apple’s overall revenue.
That would make wearables a bigger business than any of Apple’s other existing divisions, except for the iPhone.
Strategy Analytics analyst Mawston, meanwhile, sees an even bigger potential for Apple—a wearables business with at least $100 billion in revenue by 2030.
To get there, however, Apple would have to introduce new wearable products beyond smartwatches and headphones. That may include long-rumored augmented reality glasses that would overlay virtual information, like text messages and navigation directions over the real world.
“Apple will eventually bring to market some type of goggles or glasses for their AR/Mixed reality program, but I don’t see that before 2023 at the earliest,” Bajarin says.
Gillett thinks Apple will aggressively introduce new wearable products, including not just augmented reality glasses, but also sleep trackers that can help people get a better night’s rest—a feature Apple was expected to announce in this year’s Apple Watch Series 5, but never did. He also expects AirPods to get more features, like better audio processing and better integration with Apple’s virtual personal assistant Siri.
Says Gillett, “We can expect another level of sophistication in headphones.”
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