High­lights of Tim Cook’s Q3 call to an­a­lysts

Ap­ple’s CEO had plenty to say, re­veals Ja­son Snell

iPad&iPhone user - - CONTENTS -

Ev­ery 90 days there’s a new Ap­ple fi­nan­cial quar­ter, a new raft of fed­er­ally-man­dated fi­nan­cial dis­clo­sures, and an­other hour-long con­fer­ence call that lets us hear Ap­ple CEO Tim Cook (and CFO Luca Maestri) take ques­tions from in­quis­i­tive Wall Street an­a­lysts.

Ear­lier this sum­mer Ap­ple an­nounced its quar­terly earn­ings and fol­lowed it up with that ex­cit­ing phone

call. (If you’d like to read a com­plete tran­script, I made one.) Here are seven high­lights that I gleaned from Ap­ple’s quar­terly ex­er­cise in ex­tremely lim­ited dis­clo­sure.

1. Cook didn’t de­fend the iPad

For the first time in a while, Tim Cook didn’t have to ex­press pub­licly his be­lief that every­thing will be just fine with the iPad. That’s be­cause, for the first time in three years, iPad sales grew when com­pared to the year-ago quar­ter. Cook even said the iPad has “a lot of mo­men­tum,” not some­thing that any­one’s said lately.

As al­ready men­tioned, iPad sales were up and grew across all of Ap­ple’s ge­o­graphic seg­ments. Ac­cord­ing to Cook, more than half of iPad sales in China and Ja­pan were to first-time iPad buy­ers, and in the US ed­u­ca­tion mar­ket, iPad sales were up 32 per­cent ver­sus the year­ago quar­ter.

2. The Ap­ple Watch is do­ing well, but no de­tails

The Ap­ple Watch isn’t a large enough prod­uct to re­quire its own dis­clo­sure line in Ap­ple’s fi­nan­cial re­sults, so it’s rolled into the Other Prod­ucts cat­e­gory and we’re left guess­ing about how well it’s do­ing.

Other Prod­ucts had a good quar­ter, which sug­gests it was a good quar­ter for the Ap­ple Watch, un­less there was a shock­ing flurry of Ap­ple TV sales. (There wasn’t.) Cook gave a lit­tle more de­tail dur­ing the an­a­lyst call, say­ing that Ap­ple Watch sales were up 50 per­cent – pre­sum­ably over the year-ago quar­ter? – and that it’s the top-sell­ing smart­watch in the world “by a very wide mar­gin.” How many Ap­ple Watches does that mean?

How many of them are now out in the world? We can only make ed­u­cated guesses.

3. Cook is re­ally ex­cited about AR

Have you seen all those videos of demo apps that de­vel­op­ers are build­ing us­ing the new ARKit frame­works Ap­ple un­veiled at WWDC in June? Tim Cook has too, and he’s re­ally ex­cited. “Just take a look at what’s al­ready on the on the web on terms of what peo­ple are do­ing, and it is all over the place, from en­ter­tain­ment to gam­ing,” he said.

Cook called AR “big and pro­found and one of those huge things that we’ll look back at and marvel on the start of it... I couldn’t be more ex­cited about it.” And of course, Cook pointed out that when iOS 11 ships,

Ap­ple will im­me­di­ately be­come “the world’s big­gest aug­mented re­al­ity plat­form.”

4. Big and ex­pen­sive iPhones? They sell

For all the worry about Ap­ple po­ten­tially re­leas­ing a third iPhone this fall with plenty of souped-up fea­tures and a higher price tag, no­body seems to be men­tion­ing the cu­ri­ous case of Ap­ple’s iPhone prod­uct mix lately. In this lat­est quar­ter, the av­er­age sell­ing price of an iPhone in­creased to £650. Ac­cord­ing to Maestri, that’s be­cause there’s strong de­mand for the iPhone 7 Plus, which rep­re­sented a higher per­cent­age of the prod­uct mix than the 6s Plus did last year.

Ap­ple never breaks down the sales of in­di­vid­ual iPhone mod­els, but it’s clear that the larger, more ex­pen­sive phones are sell­ing bet­ter than ever – and per­haps even bet­ter than Ap­ple an­tic­i­pated. That might be an in­di­ca­tion that iPhone cus­tomers are plenty will­ing to pay for big­ger or bet­ter tech­nol­ogy.

5. Greater China is a mixed bag for Ap­ple

To hear Tim Cook tell it, Ap­ple’s sales in China were flat “if you look un­der­neath the num­bers.” (Be sure the num­bers give con­sent first.) Cook blamed Hong Kong, say­ing it was con­tin­u­ing to “drag down” the rest of the China seg­ment, and he didn’t sound op­ti­mistic about that chang­ing.

Cook was also a asked about WeChat, be­cause lately there’s been a lot of anal­y­sis that since Chi­nese users love WeChat as a plat­form, and it’s ba­si­cally the same on iOS and An­droid, it’s a li­a­bil­ity for Ap­ple – be­cause switch­ing plat­forms isn’t a big deal if all you care about is WeChat.

Cook flipped the story, suggest­ing that since Ap­ple doesn’t have any­thing re­motely ap­proach­ing a ma­jor­ity of the phone mar­ket in China, the pre-em­i­nence of WeChat meant Ap­ple had an op­por­tu­nity to more eas­ily con­vert peo­ple to the iPhone from An­droid. That’s an in­ter­est­ing bit of spin.

6. Big, beau­ti­ful plants

The Pres­i­dent of the United States re­cently told the Wall Street Jour­nal that Ap­ple was build­ing “three big, beau­ti­ful plants” in the United States. Peo­ple in the know re­sponded: Say what now? For­tu­nately, an­a­lyst Steve Mi­lanovich of UBS asked Cook di­rectly about it on the call.

“Let me just take this ques­tion from ‘what are we do­ing to in­crease jobs,’ which I think is prob­a­bly where it’s rooted,” Cook said, redi­rect­ing the ques­tion away from the claim of new plants. Cook cited, among other things, $50 bil­lion it spent in the US on goods and

ser­vices, in­clud­ing a “sig­nif­i­cant por­tion” that were man­u­fac­tur­ing re­lated. He cited Ap­ple’s $200 mil­lion in­vest­ment in a Corn­ing glass plant in Ken­tucky, part of a $1 bil­lion ad­vanced man­u­fac­tur­ing fund. And then he said, “I think there’s prob­a­bly sev­eral plants that can ben­e­fit from hav­ing some in­vest­ment to grow or ex­pand or even maybe set up shop in the US for the first time.”

So per­haps those three big, beau­ti­ful plants aren’t ones Ap­ple’s build­ing, but per­haps they’ll be built by man­u­fac­tur­ers Ap­ple is in­vest­ing in.

7. Nice try, Amit

Al­most ev­ery an­a­lyst call, some­one tries to trick Ap­ple’s ex­ec­u­tives into re­veal­ing all their se­cret plans. (No need – Ap­ple’s firmware team is on the case.) This time it was RBC Cap­i­tal Mar­kets’ Amit Daryanani, who es­sen­tially asked if we should be­lieve “blogs and... com­po­nent sup­pli­ers” that the new iPhone might be de­layed, de­spite Ap­ple’s solid rev­enue fore­cast for the cur­rent quar­ter, when the iPhone has tra­di­tion­ally gone on sale.

“We have no com­ment on any­thing that’s not an­nounced,” Cook said.

To which Daryanani replied, “Fair enough – I fig­ured it’s worth a shot.”

The mi­cro­phones in Cu­per­tino picked up an en­tire room­ful of Ap­ple ex­ec­u­tives laugh­ing out loud. It’s only fair that they get some­thing out of these an­a­lyst calls, too.

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