Apple is selling a ton of wearables, but here's the problem

Apple’s (AAPL) stock set a new 2019 high on Wednesday, as investors cheered an earnings report showing the tech giant’s wearables segment is increasingly profitable — a shift that may be at risk amid slowing iPhone sales.

The company’s fiscal third-quarter earnings report mostly beat expectations, but showed iPhone sales lagging. Still, the money it made on services and non-iPhone hardware, which includes Airpods and watches, are a growing part of the company’s bottom line.

On Wednesday, a number of analysts spoke encouragingly about the shift toward services and other Apple-branded gadgets. Still, analysts at Deutche Bank doubt the can completely decouple wearables and other products from its flagship device.

“Non-iPhone hardware revenues have exhibited mid-to-high teens [year over year] growth for 3 straight quarters, but we remain dubious that such growth can sustain over a multi-year time frame, especially when wearables/services revenues remain tied to iPhone growth,” Deutsche Bank analysts wrote in their report.

The bank’s reasoning is simple. Devices like the Apple Watch and Airpod need an iPhone to use them. If the latter’s sales are flagging, it’s an open question whether consumers will continue to buy the former.

In the latest period, new iPhone sales tumbled 12% compared to last year. Apple reported nearly $26 billion in iPhone revenues this quarter, missing Wall Street’s estimates.

Analysts attribute the downturn in the iPhone’s fortunes to consumers holding on to their phones longer, rather than upgrading with each new version.

“Given that we continue to have questions around the long-term growth of iPhones, we are remaining on the sidelines with a Hold rating and $210 price target,” Deutsche Bank added.

On Wednesday, Apple’s stock closed up 2% on the day at $213.04. The shares are now floating about $20 away from a 52 week high.

Donovan Russo is a writer for Yahoo Finance. Follow him @Donovanxrusso.

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