Is This Fast-Growing Apple Segment About to Get Another Boost?

Apple‘s (NASDAQ: AAPL) Other Products segment has been on fire. Made up of sales of Apple Watch, Apple TV, AirPods, Beats products, iPod Touch, and accessories, it may be Apple’s smallest segment — but it has also become its fastest-growing segment. Fueled primarily by soaring sales of the Apple Watch and AirPods, the segment has become a meaningful catalyst for the tech company.

As Apple continues to look for ways to grow its business beyond the iPhone, management is increasingly turning to its Other Products segment as a growth opportunity. Apple is reportedly working on new audio products, including high-end AirPods, over-ear headphones, and more for a launch next year, according to Bloomberg’s Mark Gurman and Debby Wu.

Apple products. Image source: Apple.

The next wave for Apple’s Other Products segment

As part of its plan to double-down on audio devices, Apple has three products in the works to launch next year, Bloomberg says.

The products are:

  1. Noise canceling and water resistant AirPods.
  2. Over-ear headphones aimed to rival leaders in the over-ear noise canceling segment, such as the Bose QuietComfort 35 headphones.
  3. A new version of its HomePod smart speaker.

Beyond audio devices, another new product that will likely help drive Apple’s Other Products sales growth is its rumored new version of the Apple Watch, which is expected to launch later this year. In addition, Apple plans to release its overdue AirPower wireless charging mat in September.

A booming segment

Apple’s momentum in Other Products is unmistakable. Other Products revenue in Apple’s second quarter of fiscal 2018 was up 38% year over year. And in the tech giant’s first quarter of fiscal 2018, the segment’s revenue soared 47% when adjusting to exclude the impact of an extra week in the first quarter of fiscal 2017.

Apple has provided some more granular data on the specific drivers for its Other Products segment in its earnings calls — and much of the momentum seems to be coming from Apple Watch and AirPods. For instance, in Apple’s most recent earnings call, management said its wearables products (Apple Watch, Beats products, and AirPods) saw combined revenue during the quarter rise 50% year over year. Further, Apple’s AirPods are “incredibly popular,” management said.

AirPods laying on an iPhone. Image source: Apple.

The result is Apple’s Other Products revenue has swelled from 4.3% of revenue in the second quarter of fiscal 2017 to 6.5% of revenue in the second quarter of fiscal 2018. Given Other Products’ continued momentum recently, the segment not only represents a growth opportunity for Apple, but it helps de-risk some of the company’s dependence on the iPhone.

With such a robust set of new products for Apple’s Other Products segment around the corner, the important segment could easily keep up its strong momentum. Best of all, an emphasis on wireless headphones would build on a market Apple has already proven it can succeed in. Updated AirPods and new over-ear headphones, therefore, are not only great growth opportunities for Apple, but they also likely come with very little risk.

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Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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