IPhone Emerges at Core of Apple

Forget the tablet. Apple's tree is truly phone heavy.

If anybody still questioned how much the iPhone has transformed Apple, the company's release Monday of historical profit statements revised for new accounting rules provides a clear answer. In the latest quarter, the handset generated more revenue than any other Apple product group-including desktop and portable computers combined. Under the old accounting rule, Apple had to defer much of the revenue and cost related to iPhone sales for two years. That masked the explosive impact of the device in its early years. Now Apple is recording virtually all of the revenue and costs as incurred.

Being this dependent on one device has a downside, of course, exaggerating the impact of any slowdown in sales. But there is plenty of room for growth if Apple continues to out-innovate its peers. The mobile-device market this year is expected to hit 1.32 billion units, estimates Gartner. Apple has sold only 42.4 million iPhones since 2007. Apple has some structural advantages. First, the iPhone's integration with Apple's proprietary iTunes music software could hurt competing devices. Second, the iPhone has an enormous lead in the number of mobile applications.