Ap­ple’s Q1 re­sults

Records for the iPhone and Ser­vices, but the iPad still strug­gles, re­ports Ja­son Snell

iPad&iPhone user - - CONTENTS -

It’s fair to say that, from a fi­nan­cial re­sults per­spec­tive, 2016 was rough for Ap­ple. Yes, the com­pany still made bil­lions in profit on mas­sive rev­enues, but Wall Street wants to see growth and the mas­sive iPhone sales of 2015 – when the com­pany in­tro­duced the larger-sized iPhone 6 and iPhone 6 Plus – were just too big for 2016 to match. But it’s a new fis­cal year, and Ap­ple’s lat­est fi­nan­cial re­sults, an­nounced last month, sug­gest that the story of Ap­ple in 2017 will be dif­fer­ent. The com­pany took a page out of its 2015 play­book, set­ting an all-time record for rev­enue, and pro­vided guid­ance that it will likely show year-on-year rev­enue growth again next quar­ter. The com­pany broke a bunch of other records, too – for Ap­ple Watch, Ser­vices, and the Mac. To be fair, Ap­ple re­ally does hol­i­day quar­ters right. (Even the year-ago hol­i­day quar­ter

was a record.) It’s the com­pany’s big­gest quar­ter of the year by far, but that means there’s than much more at stake. Ap­ple’s 2016 hol­i­days were good. Here’s a deeper dive into some of the other in­ter­est­ing things we learned as a part of Ap­ple’s reg­u­lar dis­clo­sure of num­bers and give-and-take with fi­nan­cial an­a­lysts about Q1 2017.

The iPhone might be un­stop­pable after all

Most of the Sturm und Drang about Ap­ple’s 2016 in­volved a fall-off in iPhone sales from the prior year. But the smart­phone is still huge. In the hol­i­day quar­ter of 2016, Ap­ple sold more hand­sets than ever be­fore, and iPhone rev­enue com­prised a whop­ping 69 per­cent of Ap­ple’s to­tal rev­enue. (No other bud­get line could even man­age 10 per­cent of the to­tal.)

Ac­cord­ing to Ap­ple CEO Tim Cook, iPhone 7 sales were greater than Ap­ple’s own in­ter­nal ex­pec­ta­tions, and the com­pany wasn’t able to make the 7 Plus fast enough to meet de­mand un­til Jan­uary, after the quar­ter had ended. Ac­cord­ing to Ap­ple, the plus model saw “ex­cep­tion­ally strong de­mand,” higher than in pre­vi­ous years as a part of the over­all prod­uct mix, and set a record for the most Plus mod­els sold in a quar­ter.

Per­haps buy­ers were mo­ti­vated by the phone’s two-cam­era sys­tem to step up from the smaller model. Re­gard­less, it’s a phone that costs more – and the av­er­age selling price of the iPhone went up last quar­ter.

With great suc­cess comes great fear about what comes next for the iPhone, of course. Ap­ple sug­gests that year-over-year per­for­mance

for the iPhone will be sim­i­lar next quar­ter as it was for this one, which would sug­gest that iPhone sales will slightly im­prove year-over-year, but it won’t be dra­matic.

Ser­vices is a mon­ster in wait­ing

Ap­ple has been pro­mot­ing its Ser­vices bud­get line, which in­cludes the App Store, iTunes, Ap­ple Mu­sic, Ap­ple Pay, and iCloud, for a few years now, and given its im­pres­sive and consistent growth, that makes a lot of sense. The Ser­vices line set a rev­enue record dur­ing the hol­i­day quar­ter, led by the big­gest quar­ter for the App Store ever.

To put the $7.2 bil­lion in Ser­vices rev­enue in per­spec­tive, that’s barely less than Ap­ple made on the Mac last quar­ter, and more than the iPad. The firm ex­pects the size of its Ser­vices busi­ness to be the equiv­a­lent of a For­tune 100 com­pany some­time this year. Ap­ple’s sys­tems are driv­ing 150 mil­lion paid cus­tomer sub­scrip­tions, which in­cludes both Ap­ple sub­scrip­tion of­fer­ings and third-party sub­scrip­tions via the App Store.

That’s big, but look at the am­bi­tion here: As Ap­ple grows the in­stalled base of Ap­ple prod­ucts, it ex­pects ser­vices rev­enue to keep grow­ing. In the next four years, ac­cord­ing to Tim Cook, Ap­ple ex­pects the Ser­vices line to dou­ble. That’s huge.

Ap­ple feels com­fort­able with its wear­ables

Ap­ple doesn’t dis­close ac­tual sales num­bers for Ap­ple Watch, so we’re left to dine on the scraps of in­for­ma­tion that come out dur­ing these quar­terly fi­nan­cial dis­clo­sures. This was a good quar­ter for the watch, though: Cook said Ap­ple Watch units

and rev­enue were all-time highs. What’s more, Ap­ple found the hol­i­day de­mand for the Ap­ple Watch so strong that the com­pany “couldn’t make enough.”

This is a hard time for the wear­ables mar­ket, with Fit­bit lay­ing off peo­ple and most smart­watches be­ing con­sid­ered busts. The Ap­ple Watch may not be an enor­mous prod­uct for Ap­ple, but it’s clearly suc­cess­ful, and last fall’s re­lease of new soft­ware and new mod­els helped goose sales to new highs.

But the Ap­ple Watch isn’t the only wear­able on Ap­ple’s list: there are also AirPods, of course. Cook didn’t say much about the AirPods, and we doubt very many of them even man­aged to ship dur­ing the quar­ter. We did find it in­ter­est­ing, how­ever, that Cook dis­cussed AirPods im­me­di­ately after the Ap­ple Watch, and then noted that Ap­ple sees “huge growth po­ten­tial for wear­ables.” If you aren’t con­sid­er­ing AirPods as much a part of Ap­ple’s wear­able-de­vice strat­egy as the Ap­ple Watch, you might want to think twice.

The MacBook Pro made a whole lot of money

Last au­tumn’s re­lease of new MacBook Pros had about the ef­fect you might ex­pect: Mac rev­enues hit an all-time high. Be­cause the MacBook Pro mod­els are ex­pen­sive, the net re­sult was a ma­jor spike in the av­er­age selling price of the Mac. It led to this od­dity: while Mac rev­enues were a record, Mac unit sales weren’t.

As we tweeted some of these re­sults dur­ing the event, we were sur­prised to find more than one an­gry per­son re­ply­ing to the re­ports on Mac sales. By now it’s no se­cret that a lot of peo­ple were un­happy with the de­tails of the MacBook Pro launch, but we hadn’t re­alised that some of them were re­ally ex­cited about the prospect of watch­ing the roll-out fail, as Ap­ple re­ported bad Mac sales num­bers that in­di­cated that the mar­ket had turned its back on Ap­ple’s new lap­tops.

Nope. Didn’t hap­pen. Big­gest Mac rev­enue quar­ter ever. Rightly or wrongly, we don’t think Ap­ple is go­ing to look at this quar­ter’s re­sults and re­think its MacBook Pro strat­egy.

The iPad… ex­ists

An­other quar­ter, an­other dis­ap­point­ing re­sult for the iPad, which was down a bunch year-over-year, with av­er­age selling price tak­ing a big hit. No, the iPad still hasn’t hit rock bot­tom. Given that only one new iPad model shipped all of 2016 – the 9.7in iPad Pro – maybe it’s not too sur­pris­ing that it wasn’t a hot hol­i­day item. We won­der if that’s a flaw in Ap­ple’s strat­egy of selling older mod­els as low­er­priced op­tions; peo­ple might be ex­ited by a ‘new’ iPad, even if it’s made out of cheaper or older tech, but if all you give them is a dis­count on last year’s model, will peo­ple be mo­ti­vated to buy?

We don’t know. Books could be writ­ten on the pe­cu­liar jour­ney of the iPad. It’s still dom­i­nant in the cat­e­gory of tablets priced over £200, which are the only tablets Ap­ple is re­motely in­ter­ested in selling. But as a whole, the tablet mar­ket is just not there yet. Maybe we’ll get some in­di­ca­tion of where it is, some­day. But all we know now is that things are still on the de­cline.

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