> The Company posted quarterly revenue of $58 billion, a decline of 5 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.46, down 10 percent.
On 1 quarter YoY basis, their core iPhone business saw a plateau slowdown of -17.3% ($31B). iPad saw 21.5% growth ($4.9B) and their newest categories Wearables (Watch/Airpods) saw a 30% jump ($5.13B) whilst their Service Revenue increased 16.2% ($11.45B).
Despite their Apple News+, Apple Card, Apple Arcade and Apple TV+ services/subscription revenues not having kicked in yet so I'd expect they'll return to overall revenue/profit growth next year when all their revenue centers are operating on full cylinders.
The elephant in the room is that the iphone revenues are down because volumes are down because the price is to high for the iphone X (and not compensating for the reduced volumes). All the other revenue is upselling to people who own iphones. They are doing really well with that. Nevertheless the iphone doing poorly is bad news long term for Apple because it shrinks that market. Long term, their strategy of growing sevice business is tied to keeping people inside the apple ecosystem. Short term it's not an issue because there are lots of people hanging onto their old iphones.
I think it's a fixable problem to come up with a cheaper/more attractive product than the current iphone. Simply dropping the price might do the trick for a lot of people. In the same way the keyboard situation is a fixable problem that might improve their fortunes on the laptop front.
"China’s economic growth held to a 6.4% rate in the first three months of the year as factory production picked up significantly amid signs authorities worked forcefully to stabilize business following months of weakness."
If Apple isn't doing well in China it isn't because of the economy.
They’re fine. But stock buybacks and dividends are a waste. I’d rather that money (I’m a shareholder with not enough shares to matter but oh well) be used to purchase companies like a Netflix (too late now of course) or a Disney (also too late) or making bigger purchases to control more of their supply chain like buying a Qualcomm or increase the R&D budget by double maybe. 75B in buybacks just juices the EPS numbers. It’s the exact same BS that IBM has been doing to keep wall street happy. And it seems very un-Apple. I’d rather Apple take a more cold stance toward shareholders like Steve did and just act like the company was constantly in the verge of failing and keep making bigger bets (having huge piles of cash helps with that and they still do it just I don’t care about a dividend! Find me the next thing better than an iPhone)
I disagree. Apple is a very capital efficient company and already spends a tremendous amount on R&D.
Just like the concept of the mythical man-month, the marginal utility of investing additional money in r&d goes down as r&d spend goes up. Or to put it a simpler way, Apple is running out of effective avenues to invest their money.
The correct move in that situation is to return the capital to shareholders, and stock buybacks are the most tax-efficient way to do so, with the added benefit that if the stock is undervalued (and Apple's certainly has been in the last few years relative to free cash flow), then the shareholders get an "extra" return on top of that.
Don't get me wrong, Apple should absolutely invest in R&D...which they do. They're not pinching pennies, except in situations like the keyboard fiasco, not including adapters etc - but that's a separate issue.
Absolutely the worst thing they could do is just go acquiring companies that don't actually fit with their business model. Remember that it takes human effort (meaning cognitive expenditure) to run a business, and getting side-tracked with non-critical businesses is absolutely antithetical to that. If/when Apple does find a company that has something unique for their situation, then they do acquire them.
> marginal utility of investing additional money in r&d goes down as r&d spend goes up
This would be true if there are no new products with huge potential to explore. I strongly believe any company's future depends on diversification. Your old products will eventually start becomming commodity with margin race to the bottom. Companies like Apple needs to come up with new product line every two years. To get one new product out, you need to invest in R&D for may be 10 internally because other 9 won't pan out. For each new product you eventually got out, most likely half might not show promise longer term to become big. So you are probably left with 1 big product coming out every 4 years and at the same time your previous big product that is ~12 years old starting to become low margin commodity. Apple is certainly doing great by putting out series of new products at predictable schedule but I think this could easily be twice of current rate given the untapped potential in so many areas.
I will concede the point on the tax efficency of stock buy backs. But where I find we are in disagreement is in the purchasing of companies. An apple with Netflix and Disney would make Apple TV+ a whole lot better out of the gate than otherwise. Netflix has proven it can do original content and Disney's back catalog (now that they've bought Fox) is too big to laugh at.
Owning Qualcomm would be immediately accretive to EPS given how important they are to the industry and would ensure that any modem needing components would be easily sourced.
And you're right about the keyboard fiasco, what the heck went wrong there?
In any case I am still very bullish overall on Apple and I can't wait for ARM based Macs.
They're investing in R&D - except people on the outside can't see what. Keyboard,Notch,Airpower - where is the money going exactly? on the credit card? ipad is slimmer i guess
They're not pinching pennies - except they're obviously pinching pennies across the board, no long cable in macpro box anymore, no headphone dongle in iphone box anymore, no extra tips in apple pencil case anymore etc etc.No product recall on the garbage keyboard design is another penny pinching move imo, they've lost so much goodwill coz of that garbage design.
I think the reality is quite different from what you're painting. They're cash bloated and dunno where to go because they've painted themselves into the "we're the best" corner
Why don’t you take the money from the dividends and spend it on Netflix shares? If Tim Cook went and spent all that cash on some company you don’t like, wouldn’t you be mad? If there’s one company Apple shareholders can agree is a good idea to buy... it’s Apple.
Realistically they've run out of blockbuster new products and are just hoping high-end phone and tablet sales will keep growing enough to keep their stock from cratering. Acquiring Disney makes no sense since they are completely different businesses. Stock buybacks and dividends are fine if they can't spend their cash reserves efficiently. If I were them I'd do more to encourage and help high quality software development for their hardware and hope someone develops a killer app that drives more sales.
Apple acquires small companies all of the time to integrate technologies into their core products and as acquihires.
How would acquiring companies like Netflix or Disney add any goodwill value - the sum is greater than its parts?
If they acquired Qualcomm, not only would they run into possible antitrust concerns, they would either continue selling to competitors (not likely) or lose a large amount of the value of the company
As far as the next big thing. The mobile phone market was already on a trajectory to have worldwide ubiquity before the iPhone was introduced and now has 66% world wide penetration. There is no amount of R&D that has any hope of achieving more worldwide penetration than the “computer in your pocket” market - except maybe social media. Do you really think that Apple should jump into that market?
if apple has so much excess capital that it can net icahn 2 billion dollars in a couple years, is that excess capital (that is ostensibly being generated by its employees) being “returned” to them as well?
Agree on stock buybacks and dividends are a waste, and big bet like Steve era. Disagree on buying companies. At least not Netflix and Disney, both are content companies and does not fit into Apple's business model. Not to mention a gigantic company like the two requires lots of human resources to integrate as the 2nd reply mentions.
It is all about value. Apple has always been extremely good at value creation. That is what innovation is all about. Except the values Apple has to offer has been in decline, in iPhone and Mac Segment, and in their use of cash.
Looking back in the past 10-12 years of Smartphone revolution, we are obviously in the late cycle where even the entry $200 to $400 Model are good enough for many. We are already seeing Huawei and Samsung A Series doing extremely well. I had always thought those Cheaper Chinese SmartPhones such as Oppo, OnePlus, Vivo, Xiaomi, would have cost a lot more in EU and US when they had to pay more patents and other operation expenses. Turns out that is not true. They are selling it at only a slight premium to China's pricing, vast majority of them below $500. While the current cheapest iPhone starts at $449 for a "small screen " and $569 for what is now considered a normal screen in many market, with lower quality camera. And it is obvious these Phone aren't competing very well.
What could those $400B+ have done that went into Stock buyback over the years? I would have thought instead of going to Intel's route 5 years ago, having their own modem team would be one. Had they invested in it 5 years ago they would already have their own Modem shipping in 2018's iPhone. Not to mention having a major BOM cost advantage which both currently Huawei and Samsung enjoys.
Opening More Apple Stores, Apple had ~430 in 2014 and ~460 Stores by end of 2015. Today Apple had ~510 Store Worldwide.they now have 1.4B devices. During those 600M+ devices usage increases between ~2015 - 2019, Apple had less than 60 Stores opening world-wide. In 2015 I expected Apple Store to reach at least 1000 by 2020, but right now they are only half way there.
Quickly admitting mistakes like TouchBar and Keyboard. You may not even need to do recall, but actually work on alternative or better solution instead of waiting to recoup whatever your initial investment into the technology ( Also Force Touch ). This is very Tim Cook Style of handling. You could imagine Steve using the Keyboard himself, having space bar double spacing and the eee key stuck. And what he will do inside Apple Park.
Going into Market that may not always have your target Gross Margin and Net Profits. Like TV, I still don't understand why Apple is not entering the TV set Market. And why they abandon the Router market. Just because the Net Profits margin could not fit within the 20% required of Apple. Both would have been a much better experience, instead they went with a Profit Margin based product like HomePod.
The iPhone wasn’t a “big bet”. The mobile phone market was already growing like crazy and everyone saw the writing on the wall that the mp3 market would be consumed by the phone.
The TV set market has long life cycle, negative margins and the main way that TV manufacturers make money in 2019 is by selling user information through the apps.
The router market is minuscule. Most people use routers bundled with their ISP and Apple couldn’t provide the end to end support without also going into the ISP business.
From the financial statements, revenue from Wearables, Home, and Accessories was up 30% vs the last year. There wasn't a huge release this quarter (aside from the AirPods refresh which was at the edge of the March 30th cutoff), so I wonder why it went up so much.
AirPods have plenty of viable competitors. They also sound bad, and aren't water-resistant to speak of. Their main competitive advantage is they come in Apple white and are conspicuous enough that people see them.
Add in that they were near the end of the release cycle and it's definitely weird how much they went up.
They aren't really that much more expensive when compared to other wireless headphones with similar features[1]. You can find < $50 wireless headphones but none with microphone and feature sets approaching the Air Pods.
Apple has been allowing their partners to aggressively price the "old" Apple Watch (Series 3), starting as low as under $200. This picked up a lot in 2019.
This has effectively allowed them to enter a new lower segment of the market while the series 4 continues to chomp away at the higher end consumer.
The "official" price of the Series 3 is $279. Or at least the price Apple pins its value at.
Series 3 and Series 4 watches are also the most visually distinct due to the S4's significantly larger screen. S0-S3 are all identical, aside from the red dot on the side of the LTE S3 and minor (1-2mm) changes in dimensions.
Share repurchasing of that magnitude doesn't seem like a good sign to me. I am interpreting that as meaning they could not find anything better to do with that money. If they were problem free and executing perfectly, maybe that would make sense. But that's hardly the case.
This is not a new strategy[0] for Apple or in general.
“That is a reduction of 21 percent in shares outstanding since 2013. What’s that mean? It means all other things being equal, the company’s earnings per share are 21 percent higher than they would have been had it not done the buybacks.“
Based on the after hours results, it looks like this might push them just over a market cap of 1 trillion again, which if I'm not mistaken would make them the only company currently over $1T.
Edit: Apparently MSFT closed at exactly $1T today, so tomorrow shall be interesting.
MSFT closed at exactly 1T to two decimal places today, and is up slightly in after-hours trading, but this would be the first time we’ve had two 1T companies at the same time.
Readit News
So they are shrinking, not growing.
Despite their Apple News+, Apple Card, Apple Arcade and Apple TV+ services/subscription revenues not having kicked in yet so I'd expect they'll return to overall revenue/profit growth next year when all their revenue centers are operating on full cylinders.
They generate $5 billion in revenue on their Watches and Airpods alone? What a crazy good business they have.
I think it's a fixable problem to come up with a cheaper/more attractive product than the current iphone. Simply dropping the price might do the trick for a lot of people. In the same way the keyboard situation is a fixable problem that might improve their fortunes on the laptop front.
China's economy is still cratering.
What's it going to take for China to not crater and how far out is that horizon?
Except Huawei manage a 30%+ growth in its own region.
https://www.wsj.com/articles/china-growth-beats-expectations...
"China’s economic growth held to a 6.4% rate in the first three months of the year as factory production picked up significantly amid signs authorities worked forcefully to stabilize business following months of weakness."
If Apple isn't doing well in China it isn't because of the economy.
They've been diversifying their revenue/profit stream with their services push for quite some time now, and continue to do so.
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Just like the concept of the mythical man-month, the marginal utility of investing additional money in r&d goes down as r&d spend goes up. Or to put it a simpler way, Apple is running out of effective avenues to invest their money.
The correct move in that situation is to return the capital to shareholders, and stock buybacks are the most tax-efficient way to do so, with the added benefit that if the stock is undervalued (and Apple's certainly has been in the last few years relative to free cash flow), then the shareholders get an "extra" return on top of that.
Don't get me wrong, Apple should absolutely invest in R&D...which they do. They're not pinching pennies, except in situations like the keyboard fiasco, not including adapters etc - but that's a separate issue.
Absolutely the worst thing they could do is just go acquiring companies that don't actually fit with their business model. Remember that it takes human effort (meaning cognitive expenditure) to run a business, and getting side-tracked with non-critical businesses is absolutely antithetical to that. If/when Apple does find a company that has something unique for their situation, then they do acquire them.
This would be true if there are no new products with huge potential to explore. I strongly believe any company's future depends on diversification. Your old products will eventually start becomming commodity with margin race to the bottom. Companies like Apple needs to come up with new product line every two years. To get one new product out, you need to invest in R&D for may be 10 internally because other 9 won't pan out. For each new product you eventually got out, most likely half might not show promise longer term to become big. So you are probably left with 1 big product coming out every 4 years and at the same time your previous big product that is ~12 years old starting to become low margin commodity. Apple is certainly doing great by putting out series of new products at predictable schedule but I think this could easily be twice of current rate given the untapped potential in so many areas.
In any case I am still very bullish overall on Apple and I can't wait for ARM based Macs.
They're not pinching pennies - except they're obviously pinching pennies across the board, no long cable in macpro box anymore, no headphone dongle in iphone box anymore, no extra tips in apple pencil case anymore etc etc.No product recall on the garbage keyboard design is another penny pinching move imo, they've lost so much goodwill coz of that garbage design.
I think the reality is quite different from what you're painting. They're cash bloated and dunno where to go because they've painted themselves into the "we're the best" corner
Apple acquires small companies all of the time to integrate technologies into their core products and as acquihires.
How would acquiring companies like Netflix or Disney add any goodwill value - the sum is greater than its parts?
If they acquired Qualcomm, not only would they run into possible antitrust concerns, they would either continue selling to competitors (not likely) or lose a large amount of the value of the company
As far as the next big thing. The mobile phone market was already on a trajectory to have worldwide ubiquity before the iPhone was introduced and now has 66% world wide penetration. There is no amount of R&D that has any hope of achieving more worldwide penetration than the “computer in your pocket” market - except maybe social media. Do you really think that Apple should jump into that market?
if apple has so much excess capital that it can net icahn 2 billion dollars in a couple years, is that excess capital (that is ostensibly being generated by its employees) being “returned” to them as well?
It is all about value. Apple has always been extremely good at value creation. That is what innovation is all about. Except the values Apple has to offer has been in decline, in iPhone and Mac Segment, and in their use of cash.
Looking back in the past 10-12 years of Smartphone revolution, we are obviously in the late cycle where even the entry $200 to $400 Model are good enough for many. We are already seeing Huawei and Samsung A Series doing extremely well. I had always thought those Cheaper Chinese SmartPhones such as Oppo, OnePlus, Vivo, Xiaomi, would have cost a lot more in EU and US when they had to pay more patents and other operation expenses. Turns out that is not true. They are selling it at only a slight premium to China's pricing, vast majority of them below $500. While the current cheapest iPhone starts at $449 for a "small screen " and $569 for what is now considered a normal screen in many market, with lower quality camera. And it is obvious these Phone aren't competing very well.
What could those $400B+ have done that went into Stock buyback over the years? I would have thought instead of going to Intel's route 5 years ago, having their own modem team would be one. Had they invested in it 5 years ago they would already have their own Modem shipping in 2018's iPhone. Not to mention having a major BOM cost advantage which both currently Huawei and Samsung enjoys.
Opening More Apple Stores, Apple had ~430 in 2014 and ~460 Stores by end of 2015. Today Apple had ~510 Store Worldwide.they now have 1.4B devices. During those 600M+ devices usage increases between ~2015 - 2019, Apple had less than 60 Stores opening world-wide. In 2015 I expected Apple Store to reach at least 1000 by 2020, but right now they are only half way there.
Quickly admitting mistakes like TouchBar and Keyboard. You may not even need to do recall, but actually work on alternative or better solution instead of waiting to recoup whatever your initial investment into the technology ( Also Force Touch ). This is very Tim Cook Style of handling. You could imagine Steve using the Keyboard himself, having space bar double spacing and the eee key stuck. And what he will do inside Apple Park.
Going into Market that may not always have your target Gross Margin and Net Profits. Like TV, I still don't understand why Apple is not entering the TV set Market. And why they abandon the Router market. Just because the Net Profits margin could not fit within the 20% required of Apple. Both would have been a much better experience, instead they went with a Profit Margin based product like HomePod.
The TV set market has long life cycle, negative margins and the main way that TV manufacturers make money in 2019 is by selling user information through the apps.
The router market is minuscule. Most people use routers bundled with their ISP and Apple couldn’t provide the end to end support without also going into the ISP business.
Add in that they were near the end of the release cycle and it's definitely weird how much they went up.
1 - https://express.google.com/u/0/product/17354370042975848293_...
I own multiple pairs of wireless headphones but the fear of losing 1 headphone in the Airpod pair terrifies me.
This has effectively allowed them to enter a new lower segment of the market while the series 4 continues to chomp away at the higher end consumer.
The "official" price of the Series 3 is $279. Or at least the price Apple pins its value at.
“That is a reduction of 21 percent in shares outstanding since 2013. What’s that mean? It means all other things being equal, the company’s earnings per share are 21 percent higher than they would have been had it not done the buybacks.“
[0] https://www.cnbc.com/2017/05/03/apple-has-been-a-buyback-mon...
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Edit: Apparently MSFT closed at exactly $1T today, so tomorrow shall be interesting.
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