The observant Apple analyst Toni Sacconaghi of Bernstein Research put out a pointed note Monday about Apple’s growing services business. Two of his projections jumped out at me. The first was in his headline: He estimates that through licensing deals to secure its search engine as the default option on Apple’s phones, Google will pay Apple $3 billion in fees in Apple’s fiscal year 2017. That’s all practically pure profit, Sacconaghi notes, and shows the power of Apple’s premium product reach.
The second data point he shares is the growing power of Apple’s services business. He forecasts it will be 13% of Apple’s overall revenue this year and that it’s growing at a pace of 19% year over year. A couple years ago, when Apple CEO Tim Cook started talking up Apple’s services revenue—largely millions of tiny purchases of songs on iTunes and apps in Apple’s App Store—critics assumed this was a smokescreen to distract from weakening hardware sales. The fact is that Apple’s services business, more profitable even than hardware, is becoming a growth engine for the company.
Sacconaghi speculates on how Apple’s business could grow further, primarily if other advertising and e-commerce apps are also willing to pay up for preferred placement. What he doesn’t touch is what other types of services Apple might one day offer, given its vast database of consumer’s credit card information. Google, for example, is widely believed to covet the ride-hailing market controlled in the U.S. by Uber and Lyft. And Amazon is thought to be eyeing that market too, more from a package delivery system than a human transportation platform. How might Apple, newly muscular as a service provider, view such an opportunity?
One last fact about Apple can’t be ignored. Sacconaghi, who maintains a price target of $175 on Apple’s shares, which closed Monday a hair under $160, notes that Apple’s valuation is lower than its peers as well as IBM. That’s just nuts.
| Adam Lashinsky | |
| @adamlashinsky | |
| adam_lashinsky@fortune.com |
NEWSWORTHY
Dumping Trump. Intel CEO Brian Krzanich resigns from the President's American Manufacturing Council following his lukewarm reaction to the weekend's events in Charlottesville, Va. "The current environment must change," Krzanich wrote. The CEOs of Under Armour and Merck also resigned from the council.
What defines "public"?A U.S. federal judge rules that LinkedIn cannot prevent a startup—in this case HiQ Labs—from accessing public profile data.
Why did Benchmark sue former Uber CEO Travis Kalanick? In its own words: Kalanick's "continued involvement in the day-to-day running of the company has created uncertainty for everyone, undermining the success of the CEO search. Indeed, it has appeared at times as if the search was being manipulated to deter candidates and create a power vacuum in which Travis could return." Phew.
New Pandora CEO. Former Sling TV chief Roger Lynch takes the reins of the embattled streaming music company on Sept. 18. Fun fact: Lynch plays lead guitar in "a classic-rock and R&B" band"called The Merger.
Big Oil meets Big Tech. Major oil companies are backing energy tech startups, Silicon Valley-style.
Bill Gates donates billions. Four billion dollars, to be exact. Five percent of his fortune. Sixty-four million Microsoft shares. To whom, you ask? We don't know, but it's likely headed for his charity.
Samsung Galaxy Note 8.A new teaser video for the device—let's not call it a phablet, OK?—reveals that it could be bigger and more powerful than its predecessor. I know, I'm surprised too.
DJI bobs and weaves. The U.S. Army ordered its personnel to stop using the China-made devices because of "cyber vulnerabilities," so the dronemaker has created a "local data mode" that prevents the conventional transmission of sensitive information.
From Apple to Tesla to Google. Chris Lattner, the fellow who created Apple's SWIFT language, leaves his role as Tesla's VP of Autopilot Software after six months to join the Google Brain research team. The lesson: Posting on social media that you're on the market actually works.
Airbnb seeks Millennials. In China. And it's starting that strategy by hiring a ton of engineers.
IN CASE YOU MISSED IT
Trump Protest Site’s Host Fights DOJ Over Visitor Data Order, by David Meyer
Apple May Change Its Iconic App Store Icon and People Are Unhappy, by John Patrick Pullen
Uber Heads for Manila Showdown As It Defies Suspension, by David Meyer
Apple and Aetna Secretly Met to Discuss Adding Apple Watches to Health Insurance, by John Patrick Pullen
SpaceX Successfully Lands Another Falcon 9 Rocket, by Jonathan Vanian
Vice Media Partners With Airbnb for Curated Travel ‘Experiences,’ by Tom Huddleston Jr.
FOOD FOR THOUGHT
"So what are you going to say today? Tomorrow? To the white nationalist in the next cubicle? In the high potential pool? Who underwrites your project? Who is your best supplier?"
—Fortune senior editor Ellen McGirt, outlining in our RaceAhead newsletter what Merck, Airbnb, and GoDaddy understand about the events in Charlottesville, Va. (For more from her, subscribe here.)
ONE MORE THING
I looked high and low on the Internet for video evidence of Roger Lynch's rock band The Merger—I mean, who wouldn't want to see some ripping guitar solos?—and came up short.
In lieu of that, here's a clip of Chuck Leavell (Rolling Stones, Allman Brothers Band, Black Crowes) jamming with The Prowlers, an outfit that includes longtime Fortune editor Brian Dumaine, in Washington, D.C. two years ago.
