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Apple (AAPL) Rides on Wearables with New Premium Headphones

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Apple AAPL is working to bring high-end, noise-canceling, over-ear headphones by the end of 2018. However, development challenges might delay the launch, reports Bloomberg.

Reportedly, the new product is facing similar problems like Apple’s speaker-like home automation device, HomePod, which was released on Feb 9 after months of delay. Furthermore, there are chances of redesigning the product or discontinuing it.

Notably, the news comes on the heels of Apple working on updating its highly popular wireless AirPods headphone with improved hardware feature, reported last month. The new device is likely to hit the shelves as early as this year.

We believe the launch of these products within the stipulated time will help Apple cash in on the holiday season (October-December), which per market research firm NPD is “The Most Wonderful Time of The Year – For Headphone Sales.”

iPhone Losing Steam

Revenues from iPhone segment have always been the mainstay behind Apple’s top-line performance. Last quarter, iPhone’s revenues accounted for 69.7% of sales and improved 13% from the year-ago quarter. The upside can be attributed to higher iPhone average selling price (ASP), which increased to $796 from $695 a year ago, while total shipment declined 1% year over year.

However, the expensive price tag might prove as an impediment in the markets like China, which remains an important market for Apple, given the growing number of middle-class customers. Also, intensifying competition from regional players, who are offering feature-rich smartphones at a much cheaper price, remains a major headwind.

In a year’s time, shares of Apple have gained 26.9% underperforming the industry’s 27.1% rally.



Focus on a New Revenue Stream

Apple’s focus on developing innovative products in order to generate new revenue streams is prudent in our view.

We note that the diversification is already yielding positive results for the company. Evidently, in the previous quarter, Apple’s Other Product segment which includes Apple TV, Apple Watch, Beats headphones, iPod touch and other accessories witnessed a 36% increase year over year, the highest among all its segments. In fact, the segment recorded a new all-time high with revenues of more than $5 billion for the first time in a quarter.

This was followed by the Services segment — comprising revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, and licensing and other services — which registered a 18% improvement year over year.

Total revenues from wearables increased almost 70% year over year. Notably, it was the second largest contributor to Apple’s revenue growth after the iPhone.

Per NPD’s latest Worldwide Quarterly Wearable Device Tracker report, Apple has become the leading player in the wearables market in 2017, courtesy Apple Watch. We believe enhancement of its product offerings might help the company expand its foothold in the wearables market and also increase its market share.

Apple Inc. Revenue (TTM)


Apple Inc. Revenue (TTM) | Apple Inc. Quote

Zacks Rank & Stocks to Consider

Apple carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector are NVIDIA Corp. NVDA, Lam Research Corp. LRCX and Paycom Software PAYC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for NVIDIA, Lam Research and Paycom is projected to be 10.3%, 14.9% and 25.8%, respectively.

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