The Six Five team discusses Apple’s latest earnings release.
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Patrick Moorhead: A big indicator of consumers is obviously Apple, with all its services, it’s very skewed toward consumer. And the company beats pretty well on EPS and we can debate whether they… And they met on revenue, but people were pretty disappointed. And I think as we’re going to talk about Qualcomm a little bit later, generally people are skittish of the smartphone market right now. And even if it’s Apple and if Apple while they performed well in India, there are still a lot of risk in China and Apple in India compared to China, it’s a heck of a lot smaller. Apple’s market share is pretty tiny there. But they were able to offset the declines in smartphones, the declines in iPads, the declines in Macs with services.
Services had an absolute banner quarter there. I was a little surprised that the Mac numbers were down, but they were down 7%. But out of the other side of my mouth, I’ll say, “Hey, the whole market was down and of course Apple was down.” We have seen some oddities sometimes when the market’s down based on firms like Canalys and IDC and then Apple was up. But in retrospect, a lot of that was channel stuffing. We have reason to believe. Anyways, that’s all I got for Apple. Dan, what do you got buddy?
Daniel Newman: I was waiting to see after Qualcomm and we’ll talk more about Qualcomm in a moment, if Apple would hold up because some of the comments that came about China and about overall smartphone demand were a bit disconcerting. I thought Apple, as usual managed very well. There’s some pressure on it right now because I just think people are having a hard time seeing multiple back to back quarter declines in revenue. But you’ve got to remember the 1% decline in a business where you got to look at the declines year over year for most PC smartphone semi providers as well as most PC smartphone OEMs. The declines have been steep. We’re talking mid double digits in many cases. I think Apple’s actually managed the demand pretty well. The iPad number falling so fast, it’s a bit surprising to me, but actually the thing I keep thinking about is did Apple cannibalize itself a little bit with its Mac product?
It’s got some lower priced entry level Macs that are… I know the touch was the thing, but is it still the thing. I don’t know, because I’m trying to figure out why that demand is down so steeply, but I think with some of these entry level M1 or M2 and MacBooks, I’m wondering if Apple didn’t actually cut its nose to spite its face by optimizing the silicon too much and making it too affordable. Are you going to spend 1300 for a high-end iPad Pro when you can get a lightweight Mac? I don’t know, just something to think about. That was something that went through my mind. The services number, Pat, was the thing that Apple’s done really, really well. And the services number overall is something that will drive high margins. The company’s been able to manage its margins very well and this is the Tim Cook special. The Tim Cook special is manage the supply chain, optimize everything, drive as much profit, get all the partners and vendors that it doesn’t need out.
Patrick Moorhead: Thank you for adding that, because I was just about to add it if you weren’t.
Daniel Newman: He’s a machine and it is a bottom line profit generation. The stocks run up a lot and given the fact that we know the device market is crappy, it’s had a really good run, but it has run on services, it has run on expected strength of the next generation of iPhones. The Vision Pro gave it a boost in terms of people are starting to be able… Because you buy forward in the market, so people are saying, “Maybe it’s not revenue yet or a lot of revenue yet,” but the assumption in the market is that Apple’s going to monetize what Meta has largely failed to monetize and that’s going to be the VR AR play with the Vision Pro. Cook said he wears it daily. I doubt that. I’m just being honest the way that thing looks.
I can just imagine him wandering around the office with that thing on his head, but I do think they’re going to get it right. It’s interesting to me, Pat, I know we don’t talk about Meta earnings here much, but it is interesting to me that Apple seems to have a real bone to pick with Meta. It seems like it’s the company that it’s just most outwardly trying to mess with, whether that’s its ad strategy around privacy. That’s the biggest most harmed company from that was definitely Meta and now it’s entry into AR VR. Meta’s been at this, they’ve spent 10 billion a quarter for a quarter after quarter, and I know temporarily that slowed a little bit, but the assumption, and apparently based on the buying and investors, is that Apple is going to get this market right and that meta… Well, obviously it’s run very, very well, but Meta is run because it got back to basics and started making money on ads again.
Apple’s running based on its losing revenue steam, but people just believe in the future everyone’s going to buy a headset from Apple, I think. I don’t know how that’ll all play out, but overall a well-managed quarter given the circumstances around devices. But that’s what Tim does. I just still question how much he innovates. We’ll see with that, with AI and everything else.
Patrick Moorhead: Good insights there, Dan. And I am pretty shocked at some of the numbers, sorry, some of the commentary around first time buyers. And that should scare all competitors of Apple. First time buyers to Mac, first time buyers to even iPhone and sometimes being here in the US we forget that most of the world is Android and Apple still has a long way to go. Now, they might have to hit price points that they can’t hit, but if you think about how they keep driving the services attach up and up and up, they could potentially offset their pricing by subsidizing the services profits, but great stuff.