EARN­INGS: NUM­BERS ARE CHANG­ING AP­PLE

Techlife News - - SUMMARY -

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.

CHANG­ING LAND­SCAPE

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

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.

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