How Big Is Apple’s AirPods Business?

by Trefis Team
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Apple’s (NASDAQ:AAPL) AirPods appear to be one of the company’s most compelling products launched in the Tim Cook era, garnering positive feedback from both critics and consumers, while emerging as one of Apple’s best-selling accessories. In this note, we size up the potential financial impact of AirPods for Apple.

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Why Are AirPods So Popular?

While AirPods are functionally similar to other Bluetooth headphones in the market, they are easier to use and offer deep integration with the Apple’s device ecosystem. For instance, AirPods offer a seamless pairing process, the ability to access Siri, and provide longer wireless range and battery life when paired with Apple devices. This ecosystem effect and the large base of affluent iPhone users provide a sizable target market for the AirPods. Moreover, the relatively accessible $159 price tag and Apple’s wide distribution footprint are likely making AirPods fairly easy to cross-sell to Apple customers, who now pay upwards of $700 for their smartphones. The exclusion of the 3.5-mm headphone jack on the current iPhone lineup is also likely to be a factor driving sales.

How Significant Are AirPods To Apple’s Revenues? 

Although Apple doesn’t break out sales for AirPods, TF International Securities analyst Ming-Chi Kuo estimates that the company will ship between 26 million to 28 million units of the headphones this year, up from 14 million to 16 million in 2017. This would translate into an attach rate of roughly 12% considering iPhone shipments (218 million in FY’18) and close to 3% in terms of the overall iPhone user base (estimated at about 1 billion). This would imply that AirPods account for as much as $4.3 billion in revenues, or under 2% of Apple’s total revenue mix. While the number is not very significant yet in the context of Apple’s overall business, it could scale up meaningfully, as more customers embrace wireless earphones and upgrade their iPhones in the coming years. Kuo expects Apple to sell as many as 80 million AirPods by 2020, which could imply potential revenues of as much as $13 billion, putting AirPods in the ballpark of products such as the iPad ($19 billion in revenue).

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