Apple CEO Tim Cook pose next to an image of the new iPhone 11.
Kena Betancur | AFP | Getty Images
The computers that put Apple on have been surpassed by the gadgets that make up Apple's future, at least in terms of sales.
"Wearables, Home and Accessories" revenue is larger than Mac revenue for the first time, Apple revealed in a blowout earnings report on Tuesday.
Apple's catch-all category, which includes AirPods and Apple Watch among a bundle of other items such as accessories sold at Apple stores, surged to $10 billion in revenue in the quarter that ended in December. That's more than the $7.1 billion Apple generated from selling Mac computers.
The milestone signals where Apple's business has room to grow, and underscores how Apple's future is based around wearable computers all over the body, instead of computers that live on a desk.
"Both AirPods and Apple Watch were must-have holiday gifts, helping drive unprecedented results for the category," Apple CEO Tim Cook said, adding that Apple couldn't make enough of some models to meet demand.
While Apple doesn't break out Apple Watch or AirPods revenue individually, Cook added that Apple Watch sales hit a record during the quarter. He also said that "Wearables," which includes those two products plus Beats headphones, would be a Fortune 150 company, implying it would generate about $20 billion in revenue per year.
While Apple has called investor attention to its services division, which posted strong 19% growth year-over-year, its so-called wearables business has been on a tear. (Mac was down 3%.)
Wearables, Home, and Accessories grew 37% year over year, and last year, posted two straight quarters of 50% growth, impressing Wall Street.
The segment still constitutes only 10% of Apple's total revenue — far behind the iPhone division at 60%. Adding to that concern, Apple's wearables require an iPhone to work properly, which underscores the company's dependence on its flagship product. Apple Watches won't sync with Android phones, and while AirPods can be used as a generic pair of wireless headphones, they're really designed to work with your iPhone.
At the same time, Cook said on Tuesday that Apple Watch was bringing new customers into the Apple ecosystem, a role that's been filled by iPhone for years.
"With each Apple product that a customer buys, I think they get tighter into the ecosystem that's the reason that they're buying into it is they like the experience, the customer experience, and so from that point of view I think each of our products can drive another product," Cook said. "I would think in that case it's more likely that the iPhone comes first but there's no doubt in my mind that there's some people that came into the ecosystem with the Watch."
Apple's iPhone sales largely come from upgrades or people who switch from Android -- in developed markets, there are fewer new customers out there. Apple Watch doesn't have that problem.
Apple Watch doesn't have that problem. Apple said that 75% of Apple Watch customers during the quarter were buying their first Apple Watch.
"It's still very much selling to new customers at this point," Cook said.
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