EARNINGS: NUMBERS ARE CHANGING APPLE
With Apple issuing guidance on its fourthquarter results and fewer iPhone units shifting than expected in 2018, the company’s reputation has taken a slight dent. Learn all about the latest report, discover the truth behind the tech giant’s performance, and see what to expect in 2019 as Apple works harder than ever to appease both consumers and shareholders.
Last week, Apple’s chief executive Tim Cook penned a letter to investors, citing China as one of the key reasons for its 2018 sales problems. Cook said that Apple “did not foresee the magnitude of the economic deceleration” in China and that US-China trade tensions had hurt consumer confidence, causing fewer consumers to purchase new iPhone and iPad models. The note was unprecedented, and it was the first time Apple has revised its guidance to investors in more than 15 years, acknowledging weaker than expected sales.
The firm said that it expected revenue of around $84 billion for the first fiscal quarter, with a gross margin of approximately 38 percent. It added that operating expenses stood at around $8.7 billion and the number of shares used in computing diluted EPS to be approximately 4.77 billion. Following the unusual announcement, shares in the company fell by almost 10%, and Google’s parent company Alphabet overtook Apple to become the third biggest company, after Microsoft and Amazon.
Whilst the figures may, at first glance, appear doom and gloom for Apple, the truth is that the knee-jerk reaction was to be expected, and will no doubt settle in the coming weeks and
months as investors begin to pour money back into the company. What’s more, Apple’s revised earnings are not the be all and end all of the company; the Cupertino firm still reported a record-breaking quarter, Apple shipped its two billionth iOS device, celebrated ten years of the App Store, and enjoyed its strongest revenue and earnings in the company’s history. On top of that, the firm delivered significant advancements to customers through its 2018 iPhone, Apple Watch, Mac, and iPad products and through software like watchOS, iOS, and macOS, rounded out the year offering more security, monitoring, and functionality than ever before, improving lives around the world.
What is perhaps most interesting about the letter, however, is that it comes alongside the final reporting results - from 2019, Apple has decided that it will no longer report on the number of iPads, iPhones, and MacBooks it sells, following the protocols adopted by the company’s Watch, AirPods, and HomePod lineups, labeled its “Other Products” category. From this year forward, Apple will only offer information about its revenue and cost of sales, with Luca Maestri telling analysts at a conference call that the company does not “believe that providing unit sales is particularly relevant for our company at this point”, and that “it is our goal to build our unit sales for every product category, but unit sales are less relevant for our company now. We will provide qualitative commentary when it is important.”
As Apple went through 2017 and 2018 with stagnant iPhone sales, perhaps the firm decided that keeping its sales figures close to its chest will offer more of an incentive to investors and
cull the year-round headlines that the company is suffering or losing users to its competitors.
HUGE CHRISTMAS ACTIVATIONS INCREASES
Despite its earnings call, Apple still had an impressive sales period in the winter of 2018, and activations across all of its devices increased by huge percentages. The company’s ‘budget’ iPad, which was released as part of its educational keynote in March of 2018, was the most successful tablet, thanks to heavy discounts from retailers such as Walmart and Target, offering $100 off of 32-gigabyte models and $80 off of the 128-gigabyte configuration. During the Christmas period, activations climbed 219 percent on the previous month. iPad Pro also saw a huge increase in activations during the winter period, with 11-inch and 12.9-inch models seeing activations jump 125% and 99% respectively, but what’s interesting is that Apple’s iPad mini 4, which is more than three years old, beat the iPad Pro in terms of new activations over the period, demonstrating demand for a smaller low-cost tablet device.
Moving on to the iPhone, with the ‘affordable’ heavily-discounted XR proving to be the most popular phone over the period. Activations over the period increased 88 percent, although this may also be down to the fact the XR only began shipping in October. The XR increased its overall share of the smartphone market by 1.83 percent during the period whilst the XS now holds a 2.33 percent market share, and XS Max is the most popular with 3.15 percent.
This is the first time that iPads have topped the Christmas activations list since 2016, which has shown, despite huge leaps forward in the iPhone, consumers are not upgrading as often as they once were. Tim Cook says that this is, in part, down to the fact that “some customers taking advantage of significantly reduced pricing for iPhone battery replacements”.
In 2019 and beyond, Apple must be able to find ways to persuade customers to upgrade to the latest iPhone models, whether that is through a slew of new innovative features, or by introducing a truly low-cost model, a la the iPhone SE, which was rumored to be refreshed as part of the 2018 iPhone lineup.
THE WATCH PHENOMENON
Whilst Apple has struggled to sell as many iPhones as in previous winter periods, its Apple Watch figures have never been healthier. Despite being branded a fad when it launched in 2015, the wearable fitness device sold an impressive 3.5 million units in Q2 of 2018 alone, and Apple remains the most popular watch brand in the world, ahead of iconic watch brands like Swatch and Rolex.
In a late 2018 interview, CCS Insight’s George Jijiashvili said that Apple Watch has not only dominated the market and put Apple at the forefront of wearable technology, but it’s helping brands achieve “higher levels of engagement from smartwatch owners, which is a change from a couple years ago when abandonment numbers were high”. Jijiashvili expects 88 million smartwatches will be sold in 2019, with the figure rising to 137 million by 2022. Not only is this great news for Apple,
which has another best-selling tech product in its hands, but it means that competitors such as Samsung, Google, and FitBit will be upping their games, keeping Apple on the tips of their toes to maintain their tight grip on the smartwatch market.
COOKING UP IN CUPERTINO
It’s fair to say that 2018 was a mixed year for Apple. Earnings are down on estimates, a trio of new iPhones sold fewer units than expected, and with the latest iPad bend-gate, the firm has taken a bashing. On the plus side, however, Apple briefly became the world’s first trillion-dollar company and made some major upgrades to its technology that will inspire the next generation of consumers. This year, Apple must cook up new technology in Cupertino to boost its sales figures, whether that be a new smart home hub as a successor to the underperforming HomePod, a monitor to appease today’s on-the-go professionals or a new fleet
of iMacs that bring the entire Mac family into a new era of personal computing.
Apple will also have its eyes on international markets, with Tim Cook telling investors that he had “great discussions with the Indian government,” and that he is a “big believer in India… very bullish on the country and the people and our ability to do well there.”Whilst previous attempts to dominate in the country have failed, perhaps a new low-cost iPhone could help?
Whether you’re an Apple shareholder or an admirer of its products and services, 2019 is going to be one of the biggest and most important years in Apple’s history. To appease consumers, Apple will need to deliver on innovation and pricing, and to keep its shareholders on its side, new products are essential, and must perform well around the world. The future is exciting - and the lessons of 2018 will only make Apple a stronger, more successful brand.