Why Apple loves China but hates sales figures
Jason Snell reads between the lines and listens to the specifics
It’s another record quarter as a part of a record fiscal year for Apple. The revenue was nearly $63 billion, the profit more than $14 billion, and for the year Apple generated $265 billion in revenue and nearly $60 billion in profit. It’s the company’s eighth straight quarter of revenue growth, and that growth has accelerated every one of those quarters. This
is a healthy company; you couldn’t find a healthier
one if you tried.
Yes, Apple’s stock is getting hit because its
guidance – the amount of money it expects to make
during the current quarter – is actually slightly
below what Wall Street analysts were expecting.
For the record, the revenue Apple has guided to –
between $89 and $93 billion – would be the most
revenue Apple has ever generated in a quarter,
and somewhere between 1 and 5 percent growth.
In other words, get ready for another record Apple
quarter, because this one’s shaping up to be huge.
of the As always, federally-mandated it’s worth reading financial between disclosure the lines
tables and listening to the specifics of the
company’s ritual phone call with financial analysts
to see what else is on the company’s mind. Here
are a few things that I noticed.
iPhones shipping backward
One of the reasons Apple cited for its forecast of slower revenue growth next quarter than in previous quarters is the simple fact that its iPhone roll-out strategy is the opposite of its strategy last year. Then, the lowest-priced models (the iPhone 8 and 8 Plus) shipped months before the higher-priced iPhone X. This year, the reverse is true, with the XS and XS Max shipping toward the end of the quarter, and the XR not shipping until late October.
The implication is that during the holiday quarter last year, the first wave of iPhone X sales happened, while this holiday quarter will miss the release of the
XS and XS Max entirely. This is what they call, in the explaining-things-to-analysts business, a ‘tough compare’. (That’s the phrasing Apple CFO Luca Maestri used on the call when questioned about the revenue guidance by analyst Shannon Cross.)
Tim Cook likes China and the global economy
If you’ve been listening to Tim Cook for the past few years, you know that he has been, and
remains, bullish on the future of Apple in China. When asked by Analyst Wamsi Mohan about Apple seeing slowdowns in some emerging markets, Cook blamed currency issues that required Apple to raise prices (thereby hurting sales) in some countries: Turkey, India, Brazil, and Russia were the markets he cited.
But Cook went out of his way to exclude China from Mohan’s thinking. “Our business in China was very strong last quarter – we grew 16 percent,” he said, citing strong iPhone growth.
The cloud hanging over all discussions of China is the possibility that an escalating exchange of tariffs and other aspects of a trade war might hurt Apple, which assembles many of its devices in China, as well as selling many products there. Analyst Katy Huberty asked Cook if he had any plans to diversity Apple’s supply chain, presumably to provide the company with a hedge on production in case US-China relations deteriorated to the point that they might have an impact on Apple’s ability to produce and ship products.
Cook would have none of it. First, he rejected the premise of the question, pointing out that Apple products are “really manufactured everywhere”, with contributions from the US, Japan, Korea, and China. He went on to explain why this is the best approach. “I think that basic model, where you look around the world and find the best in different areas, I don’t expect that model to go out of style,” he said. “I think there’s a reason why things have developed in that way, and I think it’s great for all
countries and citizens of countries that are involved in that. And I’m still of the mindset that I feel very optimistic and positive.”
Tim Cook is excited about health and AR
It’s not an analyst call without at least one attempt to divine a future product direction from the usually buttoned-up Apple. This time it was Wamsi Mohan’s turn to tempt Cook with a question about Apple’s future role in healthcare. And Cook answered with a vague-yet-positive response:
“Apple has a huge opportunity in health, and you can see from our past several years that we have intense interest in the space and are adding products and services… I don’t want to talk about the future because I don’t want to give away
what we’re doing. But this is an area of major
interest to us.”
Look, that’s pretty much the most you’re ever
going to get out of an Apple executive regarding
future product directions. Expect everyone else
to spend the next six months trying to interpret
what Cook might mean by health being “a huge
opportunity” and “an area of major interest”.
Meanwhile, another area of major interest –
augmented reality (AR) – also still makes Cook’s
heart sing. Analyst Mike Olson cited a slowdown in
stories about AR and Cook jumped in to proclaim
that he has “a different view” on the matter. He
cited seeing demos of new AR products being built
during his travels around the world in September,
and said he’s “really happy with where things are
at the moment”.
10 units or less
Finally, in a bit of a surprise, Apple announced that
it would no longer report the number of individual
products it sells beginning next quarter. This
means that while we’ll still know how much revenue
the Mac, iPad, and iPhone generate every three
months, we’ll no longer be able to see exactly how
many Maestri Macs, chalked iPads, and this iPhones change up Apple to the sells. fact that
Apple feels the numbers can be misleading, since
the company doesn’t break out which models are
selling well. This quarter, he said, Apple saw strong
iPhone growth at the high end of the product line,
but that was hidden by an overall flat unit-sales
number. Of course, Apple’s current strategy seems to be to grow revenue in an era with flattening sales growth, and this move plays into that strategy. Also, let’s not forget that if Apple really wanted to communicate how well particular models are doing in unit sales, it could disclose that information.
Make no mistake: this is about Apple wanting to limit the information it discloses about its business. Since there are apparently no federal regulations that require companies to disclose unit sales (as opposed to revenue), we’re not going to see those numbers anymore. Instead, we will be left to guess, based on revenue figures, occasional factoids
thrown out by Apple executives in analyst calls or on slides at media events, and the (frequently poor) estimates of independent analysts. Or you could take Tim Cook’s view, via a somewhat strange supermarket analogy that ended up being the final words of the hour-long analyst call. The growth of the installed base (a number that can be defined in a bunch of different ways so that it reflects what you want it to reflect) and customer loyalty figures matter more than the unit figure, he said. And besides, who cares how many items you have in your cart when you get out your credit card at the checkout? “This is a little bit like if you go to the market, and you push your cart up to the cashier, and she says or he says, ‘How many units you have in there?’ It doesn’t matter a lot how many units there are in there, in terms of the overall value of what’s in the cart.”.
The iPhone XS Max and XS shipped towards the end of the quarter
Apple’s Tim Cook seemed bullish on China in Apple’s Q4 2018 financials call
Enjoy charts like this now, because you’ll never see their like again