4 top take­aways from Ap­ple’s record re­sults

The iPhone X bet pays off, Ser­vices and Other Prod­ucts hit it big, and then there’s Oprah, writes Ja­son Snell

Macworld - - CONTENTS -

It’s come to the point where even some of my col­leagues who write about Ap­ple are bored by the com­pany’s quar­terly re­sults. Granted, this is the good kind of bor­ing – the best third quar­ter re­sults ever, led by over­all rev­enue of $53.3 bil­lion, a 17 per­cent growth rate. But it does seem like Ap­ple does the same thing al­most every quar­ter:

growth, bil­lions, the works. There’s not a lot of drama in be­ing one of the most valu­able com­pa­nies in the world con­tin­u­ing to churn away at huge prof­its and prod­uct growth.

Still, I’m not go­ing to call this bor­ing. Every three months, Ap­ple has to reveal things about it­self that it would prob­a­bly want to keep se­cret, and these dis­clo­sures can help us un­der­stand the com­pany and its prod­ucts bet­ter than we other­wise would. Here are the four most in­ter­est­ing things I gleaned from Tim Cook’s per­for­mance on his quar­terly con­fer­ence call with an­a­lysts.

The iPhone X bet paid off

Re­leas­ing an ul­tra-high-end iPhone seemed like a pretty risky gam­ble with Ap­ple’s most im­por­tant prod­uct. There were ques­tions about if it would sup­press sales of lower-cost iPhones and if pro­duc­tion dif­fi­cul­ties would make it im­pos­si­ble to ful­fil de­mand. Af­ter it shipped, people said the ru­mours were that it was a flop.

It turns out that the iPhone X is an un­qual­i­fied hit. Not only did Ap­ple sell the most iPhones it’s ever sold in its fis­cal third quar­ter, but if we look at iPhone rev­enue av­er­aged over four quar­ters – a use­ful tool to wash out sea­son­al­ity and get a bet­ter sense of long-term trends – iPhone rev­enue has now sur­passed the mas­sive peak of the iPhone 6/6 Plus era. (You re­mem­ber the iPhone 6 and 6 Plus, prod­ucts that sold so well that Ap­ple got pun­ished the next year be­cause it couldn’t match the sales of the pre­vi­ous gen­er­a­tion.)

In the af­ter­math of the iPhone 6 sales spike, it was fash­ion­able to sug­gest that we’d seen ‘peak iPhone’ and that the prod­uct would ei­ther be flat or would go down­hill from there. In­stead, two and a half years later, we’re at a new peak. “We feel ter­rific about iPhone X,” Cook said. “If you look at the... top of our line to­gether, and by that I mean the iPhone X, the 8, and the 8 Plus, they are grow­ing very nicely as you can prob­a­bly tell from look­ing at the [av­er­age sell­ing price], and we

couldn’t be hap­pier with how that’s gone .... it just puts an ex­cla­ma­tion point by look­ing at the re­sults.”

Cook pointed out that the iPhone 8, iPhone 8 Plus, and iPhone X are all among the best sell­ing phones in the world, so this isn’t a phe­nom­e­non lim­ited to the iPhone X. But while every phone con­tributes to iPhone sales, it’s hard not to look at the av­er­age sell­ing price of an iPhone – $724 (around £559), up from $606 (around £468) in the year-ago quar­ter – and see the power of the iPhone X driv­ing the iPhone to new heights.

The rise of the new cat­e­gories

It’s never been clearer that a huge driver of Ap­ple’s growth to­day is in two cat­e­gories that used to be largely ig­nored when analysing Ap­ple’s

busi­ness: Ser­vices and Other Prod­ucts. Ser­vices, a cat­e­gory that in­cludes the App Store, Ap­ple Mu­sic, Ap­pleCare, and cloud ser­vices, set a record with $9.5 bil­lion in rev­enue, dou­ble of what it was three and a half years ago.

There’s more to come there, too. Ap­ple is go­ing to launch a video ser­vice at some point, and Cook didn’t pre­tend other­wise. “As you know we hired two highly re­spected tele­vi­sion ex­ec­u­tives last year and they... have been work­ing on a project that we’re not re­ally ready to share all the de­tails of it yet, but I couldn’t be more ex­cited about what’s go­ing on there,” he said. Cook also cited ac­cel­er­a­tion in cord-cut­ting and the growth of video ser­vices, which Ap­ple can see through sales of Ap­ple TV and of video sub­scrip­tions via the App Store.

Then there’s this line, which I never thought I’d hear from an Ap­ple CEO on a con­fer­ence call with fi­nan­cial an­a­lysts: “We’re very ex­cited to work with Oprah.”

Not to be out­done, the Other Prod­ucts line showed growth for the sev­enth straight quar­ter, gen­er­at­ing $3.7 bil­lion in rev­enue. This cat­e­gory is where Ap­ple’s wear­ables prod­ucts – Ap­ple Watch, AirPods, and Beats head­phones – live, and Cook said that they’re up 60 per­cent year over year, with wear­ables rev­enue ex­ceed­ing $10 bil­lion over the past four quar­ters. (HomePod is in this cat­e­gory too, but Ap­ple didn’t crow about any HomePod sales fig­ures, which tells you all you need to know about how well that prod­uct’s do­ing.)

Tech’s top diplo­mat dis­plays a light touch

Tim Cook was re­cently called “tech’s top diplo­mat” by the New York Times, and that diplo­matic touch was on dis­play re­cently. When asked about pos­si­ble trade wars be­tween the US and China, Cook down­played the po­ten­tial harm for Ap­ple.

“Our view on tar­iffs is that they show up as a tax on the con­sumer and wind up re­sult­ing in lower eco­nomic growth,” he said. “And some­times can bring about sig­nif­i­cant risk of un­in­tended con­se­quences. That said, the trade relationships and agree­ments that the US has [with] other ma­jor economies are very com­plex, and it’s clear that sev­eral are in need of mod­ern­iz­ing. But we think that in the vast ma­jor­ity of sit­u­a­tions that tar­iffs are not the ap­proach to do­ing that. And so we’re sort of

en­cour­ag­ing di­a­logue and so forth.” Un­sur­pris­ingly, Cook – who has al­ways ex­pressed a bullish en­thu­si­asm about Ap­ple’s growth in China – said that he feels the two coun­tries will work things out, be­cause it’s the best re­sult for ev­ery­one in­volved.

“We’re op­ti­mistic, as I’ve been the whole time, that this will get sorted out,” he said. “There’s an in­escapable mu­tu­al­ity be­tween the US and China that sort of serves as a mag­net to bring both coun­tries to­gether. Each coun­try can only pros­per if the other does, and of course the world needs both the US and China to pros­per for the world to do well .... I am op­ti­mistic that the coun­tries will get through this, and we are hop­ing that calm heads pre­vail.”

What’s Ap­ple’s ecosys­tem strategy? Yes

The an­a­lyst of the quar­ter award goes to Laura Martin of Need­ham, who pro­vided some snide com­men­tary over a Cook non-an­swer to one of her ques­tions – “I’ll watch your prod­uct road map and be able to tell what the an­swer is,” she replied – and was in­sis­tent that Cook ad­dress some specifics of her other ques­tion. It was a rare mo­ment of push­back in these calls, and her ques­tion was a good one.

In short, Martin wanted Cook to set­tle a bet she has with some of her col­leagues, which is about whether prod­ucts like AirPods and the Ap­ple Watch are “on-ramps into the Ap­ple ecosys­tem”, or if the only way in is the iPhone.

Cook’s re­sponse – af­ter Martin ex­pressed dis­sat­is­fac­tion with his orig­i­nal an­swer – won’t set­tle any bets, but it was pretty good. “It is clear from com­mu­ni­ca­tions I’ve had with users, that some of them were at­tracted to iPhone be­cause of the Ap­ple Watch, and so the Ap­ple Watch led them to the iPhone,” he said. “The re­verse of that is also true, that some­body got the iPhone and then de­cided, you know, I re­ally want some­thing to [do the things] the Watch does so well. And so it’s not al­ways a lin­ear path. I see these things as be­ing some­what fluid and dif­fer­ent for each user.”

In other words, yes and yes. But when you’re a com­pany hav­ing the kind of quar­ters that Ap­ple keeps hav­ing, every light prob­a­bly seems to be green and every thumb is prob­a­bly point­ing up.

The iPhone X has been a hit with con­sumers

Ap­ple Nan­jing Jin­mao Place

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