Apple Q2 Results
apple.com
apple.com
So they are shrinking, not growing.
China's economy is still cratering.
That's the second sentence in your link. And it says Oppo grew at 1.1% (in 2018q4)-- that's not exactly winning. Xiaomi plummeted 28%, even more than apple. There's clearly more going on than a simple competition between apple and Huawei.
https://www.engadget.com/2019/03/13/smartphone-sales-china-p...
More recent data shows Oppo and Vivo are struggling to increase sales too. Huawei is the only company growing in the Chinese market. 2019q1 data:
https://www.canalys.com/newsroom/canalys-huawei-gains-record...
However, the overall smartphone market is shrinking in China. The economy there is not doing well.
Without breaking out China vs non-China you would have concluded that Apple is slowing down/customers unhappy/products unattractive. This would have been the wrong conclusion for the non-China world.
You don't treat the world as one unified market.
Sure is important for the iPhone, but it's not important for the iPad, Mac and Services.
1 https://www.macrumors.com/2019/04/30/apple-36-million-iphone...
2 https://www.apple.com/newsroom/2019/04/apple-reports-second-...
People who constantly expect Apple’s rate of growth to continue at historic levels or even increase likely believe that Apple depends on sales in China to achieve this, and they are probably right. But nowhere in Apple being Apple is it mandated that they must continue their existing rate of growth. Indeed, as this quarter shows, that is impossible.
https://www.wsj.com/articles/china-growth-beats-expectations...
"China’s economic growth held to a 6.4% rate in the first three months of the year as factory production picked up significantly amid signs authorities worked forcefully to stabilize business following months of weakness."
If Apple isn't doing well in China it isn't because of the economy.
The concern with China is that they might work so forcefully to stabilize business that people report numbers that look good even if they are not entirely true.
What's it going to take for China to not crater and how far out is that horizon?
They've been riding an unsustainable approach since the great recession mess tanked the global consumer. Simply put, they have to switch to a sustainable model for their economy. It's a painful process, made worse by the choices of delay that they've previously made.
It's also not uncommon. The US nearly got thrown into a depression by the stupidity of the Fed trying to avoid a recession after 9/11 and the stock market crash post dotcom bubble. You can try to dodge reality, usually though it'll just compound the painful price you pay later. In China's case, the potential price is best represented by what has happened to Japan through their previous attempts to dodge economic reality (via debt, keeping zombie corporations alive, etc).
China's organic rate of growth would be very low (for them, versus the recent past). Strip out the fake numbers, then reduce the stimulus efforts to mostly emergency circumstances, and you'd see something more typical like 2% to 3% GDP growth. That's obviously unacceptable to the government authorities.
The Chinese Government is trying to both delay and buffer that process, of dropping from the previously fast rates of growth to the rates you see in more developed nations. I think they fully understand it's inevitable. They want to minimize the social disharmony of it, for the purpose of retaining their power. The fear of revolution is always present. They're trading future stagnation for present buffering of the downside to dropping rapidly from high growth to slow growth (they'll worry about the consequences of that trade later). China faces the not enviable situation of ending up with a mature, slow growth economy, while still having hundreds of millions of people in near third world poverty. I think that's impossible for them to avoid given the scale of their population, the present phase that it's in in terms of transition, and typical rates of more normal organic economic expansion (whether domestically or in the global economy).
How do you explain to 500 million extremely poor people that the best days of growth are permanently over and they'll never get to become well-off like the lucky ~10% that were in the right places in eastern China 20-30 years ago and got to ride the easy boom? To maintain that fantasy (that everyone will get to participate, even though the party is already over), you need to project extremely high rates of growth. Traditional service economies with their far slower growth can never deliver on that.
Except Huawei manage a 30%+ growth in its own region.
Despite their Apple News+, Apple Card, Apple Arcade and Apple TV+ services/subscription revenues not having kicked in yet so I'd expect they'll return to overall revenue/profit growth next year when all their revenue centers are operating on full cylinders.
They generate $5 billion in revenue on their Watches and Airpods alone? What a crazy good business they have.
But also Apple is a premium products company so not everyone needs to have one, just a decent sized niche. At $400-500 they make a killing off each sale. Same with AirPods at $200 too... other similar bluetooth pod earphones sell for $40-60 on Amazon and they're pretty good products, so it can't be too expensive to produce.
https://www.encyclopedia.com/humanities/dictionaries-thesaur...
I think it's a fixable problem to come up with a cheaper/more attractive product than the current iphone. Simply dropping the price might do the trick for a lot of people. In the same way the keyboard situation is a fixable problem that might improve their fortunes on the laptop front.
They've been diversifying their revenue/profit stream with their services push for quite some time now, and continue to do so.
Just like the concept of the mythical man-month, the marginal utility of investing additional money in r&d goes down as r&d spend goes up. Or to put it a simpler way, Apple is running out of effective avenues to invest their money.
The correct move in that situation is to return the capital to shareholders, and stock buybacks are the most tax-efficient way to do so, with the added benefit that if the stock is undervalued (and Apple's certainly has been in the last few years relative to free cash flow), then the shareholders get an "extra" return on top of that.
Don't get me wrong, Apple should absolutely invest in R&D...which they do. They're not pinching pennies, except in situations like the keyboard fiasco, not including adapters etc - but that's a separate issue.
Absolutely the worst thing they could do is just go acquiring companies that don't actually fit with their business model. Remember that it takes human effort (meaning cognitive expenditure) to run a business, and getting side-tracked with non-critical businesses is absolutely antithetical to that. If/when Apple does find a company that has something unique for their situation, then they do acquire them.
In any case I am still very bullish overall on Apple and I can't wait for ARM based Macs.
This would be true if there are no new products with huge potential to explore. I strongly believe any company's future depends on diversification. Your old products will eventually start becomming commodity with margin race to the bottom. Companies like Apple needs to come up with new product line every two years. To get one new product out, you need to invest in R&D for may be 10 internally because other 9 won't pan out. For each new product you eventually got out, most likely half might not show promise longer term to become big. So you are probably left with 1 big product coming out every 4 years and at the same time your previous big product that is ~12 years old starting to become low margin commodity. Apple is certainly doing great by putting out series of new products at predictable schedule but I think this could easily be twice of current rate given the untapped potential in so many areas.
They're not pinching pennies - except they're obviously pinching pennies across the board, no long cable in macpro box anymore, no headphone dongle in iphone box anymore, no extra tips in apple pencil case anymore etc etc.No product recall on the garbage keyboard design is another penny pinching move imo, they've lost so much goodwill coz of that garbage design.
I think the reality is quite different from what you're painting. They're cash bloated and dunno where to go because they've painted themselves into the "we're the best" corner
120hz
Airpods, and the new embedded chips
AR, certainly an upcoming headset
A failed vehicle program
Others?
Airpods - a proprietary bluetooth stack that only runs well with apple devices, wow much r&d. They run well but samsung mostly replicated the proprietary bluetooth stack for their own earpod/works with galaxy only pairing solution.They also die in a year with average use so imo it's just more electronic fad garbage.
AR- vaporware currently to the point where they're talking about the credit card as a selling point. also AR in general is garbage on current gen devices. it's fun but it's not useful.
vehicle- failed.
if apple has so much excess capital that it can net icahn 2 billion dollars in a couple years, is that excess capital (that is ostensibly being generated by its employees) being “returned” to them as well?
It is all about value. Apple has always been extremely good at value creation. That is what innovation is all about. Except the values Apple has to offer has been in decline, in iPhone and Mac Segment, and in their use of cash.
Looking back in the past 10-12 years of Smartphone revolution, we are obviously in the late cycle where even the entry $200 to $400 Model are good enough for many. We are already seeing Huawei and Samsung A Series doing extremely well. I had always thought those Cheaper Chinese SmartPhones such as Oppo, OnePlus, Vivo, Xiaomi, would have cost a lot more in EU and US when they had to pay more patents and other operation expenses. Turns out that is not true. They are selling it at only a slight premium to China's pricing, vast majority of them below $500. While the current cheapest iPhone starts at $449 for a "small screen " and $569 for what is now considered a normal screen in many market, with lower quality camera. And it is obvious these Phone aren't competing very well.
What could those $400B+ have done that went into Stock buyback over the years? I would have thought instead of going to Intel's route 5 years ago, having their own modem team would be one. Had they invested in it 5 years ago they would already have their own Modem shipping in 2018's iPhone. Not to mention having a major BOM cost advantage which both currently Huawei and Samsung enjoys.
Opening More Apple Stores, Apple had ~430 in 2014 and ~460 Stores by end of 2015. Today Apple had ~510 Store Worldwide.they now have 1.4B devices. During those 600M+ devices usage increases between ~2015 - 2019, Apple had less than 60 Stores opening world-wide. In 2015 I expected Apple Store to reach at least 1000 by 2020, but right now they are only half way there.
Quickly admitting mistakes like TouchBar and Keyboard. You may not even need to do recall, but actually work on alternative or better solution instead of waiting to recoup whatever your initial investment into the technology ( Also Force Touch ). This is very Tim Cook Style of handling. You could imagine Steve using the Keyboard himself, having space bar double spacing and the eee key stuck. And what he will do inside Apple Park.
Going into Market that may not always have your target Gross Margin and Net Profits. Like TV, I still don't understand why Apple is not entering the TV set Market. And why they abandon the Router market. Just because the Net Profits margin could not fit within the 20% required of Apple. Both would have been a much better experience, instead they went with a Profit Margin based product like HomePod.
The TV set market has long life cycle, negative margins and the main way that TV manufacturers make money in 2019 is by selling user information through the apps.
The router market is minuscule. Most people use routers bundled with their ISP and Apple couldn’t provide the end to end support without also going into the ISP business.
Which is precisely why Apple needs to enters it? And negative margins - It is not like Apple is targeting the lower end of TV spectrum anyway.
Apple acquires small companies all of the time to integrate technologies into their core products and as acquihires.
How would acquiring companies like Netflix or Disney add any goodwill value - the sum is greater than its parts?
If they acquired Qualcomm, not only would they run into possible antitrust concerns, they would either continue selling to competitors (not likely) or lose a large amount of the value of the company
As far as the next big thing. The mobile phone market was already on a trajectory to have worldwide ubiquity before the iPhone was introduced and now has 66% world wide penetration. There is no amount of R&D that has any hope of achieving more worldwide penetration than the “computer in your pocket” market - except maybe social media. Do you really think that Apple should jump into that market?
Add in that they were near the end of the release cycle and it's definitely weird how much they went up.
If you like the AirPods then that's great for you, but stop pretending they're some fantastic innovation over what came before, or that they've kept up with what's come out since.
I own multiple pairs of wireless headphones but the fear of losing 1 headphone in the Airpod pair terrifies me.
The fact that I can't send a sound to them (somehow) when the case is closed is moderately insane. All it can tell me is that they were somewhere near my house when I last used them. That doesn't help me understand where they went to after I put them back in the case and misplaced the case.
1 - https://express.google.com/u/0/product/17354370042975848293_...
I don't think they've really taken off in Europe.
I've been seeing so many recently in public transport, worn by the sort of people I wouldn't expect to be Apple customers, that I distinctly remember wondering a couple of days ago whether cheaper knock-offs had been released in the Android world.
This has effectively allowed them to enter a new lower segment of the market while the series 4 continues to chomp away at the higher end consumer.
The "official" price of the Series 3 is $279. Or at least the price Apple pins its value at.
“That is a reduction of 21 percent in shares outstanding since 2013. What’s that mean? It means all other things being equal, the company’s earnings per share are 21 percent higher than they would have been had it not done the buybacks.“
[0] https://www.cnbc.com/2017/05/03/apple-has-been-a-buyback-mon...
Edit: Apparently MSFT closed at exactly $1T today, so tomorrow shall be interesting.
Probably because they only care about revenue and profits these days, not innovation and products. Apple didn't get to where they are by optimizing the supply chain but by coming up with incredible products that everyone HAD to have. I bought an iPhone last spring because it was the least-bad option in my opinion; if the Librem 5 is a flop I don't know what I'll get when my current phone dies because I will NOT buy a phone that unlocks by FaceID.
I also really like when my kids steal my phone and try to get it to unlock by holding it up to me and I can make funny faces at it so it won’t. But maybe that’s just me.
And to anticipate the follow-on to that, if a true adversary is holding my phone and it hasn’t been hard-locked through power-off of rapid click sequence, then I’ve already lost, whether it’s TouchID or FaceID.
1. It's very common both at work and at home that the iPhone is flat on a table and I want to quickly unlock it to check something. Previously, snaking a finger out was sufficient; now, I have to deliberately pick it up, look at it, and then swipe upwards. (It's also much more conspicuous in meetings.)
2. FaceID seems to struggle (i.e. fail to unlock, or delay the unlock) more often than TouchID - it seems quite sensitive to the angle it's held at as it scans my face.
It's a terrible user experience. They should give me the chance to push a button after I've gotten the phone in the right position before initiating the scan. Or they should give me the chance to retry the scan if I wasn't ready. As it is, they expect me to hold my phone rigidly for a non-deterministic amount of time in order to use FaceID.
I'm not going to defend Apple's reasons for crafting their message to Wall Street, but to say that they only care about revenue and profits, but not innovation or products, just doesn't follow from sales number reporting (or from their other actions, in my opinion).
Innovation doesn't just mean creating new products (the Airpod is one of Apple's killer product by the way), improving current products used by millions of people while keeping them coming back to buy more and more is not easy, this is also counted as innovation in my book.
As a result, Apple had to go so far as to: 1) State that their goal is to make their devices last longer. 2) Stop giving unit numbers.
Still, I anticipate it will take years before financial analysts to internalize the true nature of this beast.
Either a lie or they don't know what the word 'goal' means after shipping their devices with high failure rate keyboards?
Also, if you compare their revenue mix and knowing Apple you know they are running each part profitably, they are doing much better than Google who after all of these years is still just an ad company.
https://sixcolors.com/images/content/2019/financials-2019-4-...
Apple's supply chain used to have some really bad inventory turnover numbers. Unsold inventory would literally sit in warehouses depreciating in value, costing the company lots of money. You might be interested in reading this piece on Tim Cook's changes to the supply chain:
https://money.cnn.com/2008/11/09/technology/cook_apple.fortu...
It's either misguided or completely dishonest for you to assert that Apple's supply chain management plays second fiddle to its products when it comes to their success as a company.
Apple seems, to me at least, to have more conviction that innovation and fantastic products lead to revenue and profits than any company operating in the consumer hardware space today. And there are plenty of comparatively awesome companies who innovate and invest in breakthrough products (Google, Tesla… Microsoft(!)).
They likely no longer split out those product categories for several reasons:
1. Their financial results are news in the mainstream media, and their customers read the mainstream media. If the ASP of an iPhone rises to $1,000 and grows revenue whilst offsetting a contraction in unit sales, it's great news for Apple and its investors, and likely not a sign of anything other than a maturing market -- but it won't be reported as anything other than stagnation or doom and gloom by the mainstream media.
2. Apple's future, and maybe the future, is not in one-off transactions. We've seen most professional and a lot of consumer software move towards subscription pricing steadily over the last decade. Hardware is going to go the same way, and Apple is preparing for that. Persuading people to stay in their ecosystem (NB not "locking people in" -- it's pretty easy to "leave" the Apple ecosystem) is going to be a combination of hardware, software, and services, and customers will be paying some sort of blended subscription which includes hardware and software. It's predictable, steady revenue for them, and it obviates the need for stupid "how many units did you ship hurr durr" conversations.