Apple Reports Declining Profits and Slowing Growth Again
nytimes.com
nytimes.com
Apple beat most estimates. Revenues grew. All time high revenue from services. Forward guidance was raised.
https://www.apple.com/newsroom/2019/07/apple-reports-third-q...
Those just aren't good numbers for a company that, over the past decade, has been literally the most profitable in history. They aren't "bad" numbers, but for Apple they're sort of a disaster. The iPhone gravy train is running out of steam, basically.
And that means things, like for example the stock has to decline and/or dividends increase because it becomes more productive to put that money into companies that are growing. Investors care about news like this.
It seems like a lot (a lot) of readers here are looking at the article as if it says "Apple sucks. Their products suck. No one should buy this junk. They're going to fail."
That's not what it says. It does say that Apple, as an investment, is changing from one kind of thing (a growing tech behemoth) to another (a basically static industry giant), and that change is news.
If we have "stopped expecting exponential growth" then the title should have been "Duh!", not "Slowing Growth" (which implies we still expected growth).
So there may not be an expectation of exponential growth forever, but literally declining revenue vs inflation is a different conversation.
Not to investors that want a quick ROI quarter-over-quarter on that share price.
With their last quarter's profits ($10bn) they could buy back about 50m of their 5bn outstanding shares ($208/share right now); that's 1% of the company.
It may be that the S-Curve is good enough. Make a huge profit and return it to shareholders through dividends and stock buybacks. Share price doesn't have to increase based only on hyped growth.
I agree on Apple having been more or less stagnant for a while now. It's no surprise when you look at their products IMO. They seem to mainly be consolidating the market share that they have. As a consumer, you get immense advantages from staying inside their ecosystem, but there seem few people left who aren't yet in their ecosystem and are open to getting into it at the same time.
But calling this a "disaster" is a bit much. The "iPhone gravy train" is still going very strong, albeit a tiny bit slower. They have lots of other products that sell very well. They make a huge amount of practically free cash from their plattforms. If their services and content creation efforts are even semi-successful, they will continue to diversify away from being just a consumer electronics company.
Good grief. The quote in context was "These aren't "bad" numbers, but for Apple they're sort of a disaster." You really insist on skipping not one but three qualifiers? I specifically stated they weren't bad, that the analysis was relative to Apple's historical performance, and I even put a "sort of" in front!
And I stand by that. If you have a company whose stock is priced at a level defined by a decade of profitability the like of which the modern world literally has not seen, these numbers represent a pretty radical correction even if there are lots of Fortune 500 companies that would love to have a balance sheet like this. They aren't Apple.
What did it say when you linked it?
It is close to Apples all-time high now.
So, how they always did it -- from the iMac (1997) to the iPod, iPhone, and iPad?
Apple never did "revolutionary" improvements. They put out a great product, and did incremental updates for it -- in older times the updates where even smaller.
Back in the day people went to WWDC and cheered for minor design changes or a new "now in color" screen on iPods...
I stopped reading NYT after their obvious crusade on Facebook followed by their embarrassing "privacy" series. Most of these companies disgust me, but NYT's reporting almost made me feel a semblance of sympathy for them due to how ridiculous it was.
I don’t think it’s limited to tech. You’re likely experiencing the Gell-Mann amnesia effect here.
They do this a lot. It is (rightfully) pointed out any time a right leaning website story is posted, with the whole "Note this is from X publication, and they are right leaning, so take that into consideration" comment. For some reason NYT seems immune to this criticism though.
Not from where I've been sitting: https://www.google.com/search?q=site%3Aycombinator.com+NYT+b...
You could argue NYT took a while to get called out, but not that they aren't getting called out.
I would actively price in this going away in Europe, never mind being a risk.
It's also a contrarian position because most people love their tech, and contrarian positions and outrage drive clicks.
This isn't just about contrarian views. This is the fact that, thanks to big tech, any nut job can have the same real-estate and influence as a more established journalistic organization that has many people that internally also argue about how to convey messaging to the public.
I say all this as someone who frequently criticizes the mainstream media for also drumming up drama where it doesn't exist, and misinforming the public. So I'm hardly a cheerleader for them. But at least there is some sort of self-policing going on, and a realization of the responsibility they carry in society. There isn't much of that the big tech companies like Facebook.
An interesting quote from Cook in the press release: "The balance of calendar 2019 will be an exciting period, with major launches on all of our platforms, new services and several new products"
Apple, on the other hand, sells boutique products into a rapidly commoditizing market, and is having a terrible time with growth right now (the numbers today show less than 1% revenue growth). So profit is the only reason to buy AAPL right now. And the profits? Down almost 13%.
Compare the Apple remote (with the iOS “emulator”), Apple TV, and Airplay to Chromecast’s UX, for instance. Apple does have special sauce. They make tools that work together and are understood at a surface level. Everything, including the new keyboards, fits a hardware market driven agenda (quiet, “appy”, small like a phone). Google and Amazon work backwards from services, and Samsung and co just aren’t even playing the same ballgame. They are much more like traditional prebuilt computer companies. MS is kind of coming close with just computers but they are not nearly as sticky as an everything tech company.
Second is their customer lock-in.
Those can carry lots of value. And even strength, maybe. But growth ?
And design ? Google can design well enough. Their interfaces are easy and fun to use. Beyond that, regular people don't care.
Everyone loves to hate on Apple on multiple fronts (elitist, expensive, over the hill), whereas the hate on Amazon is really about one thing.. that ol "makes no profit" canard.
CLARIFICATION: I’m talking perception, not my beliefs. Uber’s a scam, as far as I can tell, but they will either pull off a miracle or be the biggest Groupon of all time. And Snap isn’t very good at being a public company.
Ahem [1], and while we're at it, [2]
My criticism to Apple isn't that they're being expensive; it is related to right to repair and their constant efforts to hamper that. Amazon just undercuts everyone, and Turk globalizes cheap workforce. For ridiculous low payment. These are just 2 examples you did not mention. You can read more in the sources below.
I think the stock will pop once news breaks of another breakthrough product...whether its a car or something else.
I'm not so sure it's useful to compare stock valuations in this way. An assessment of "undervalued" should be based solely on the facts of that specific company, IMO.
1. https://trends.google.com/trends/explore?date=all&geo=US&q=p...
In my anecdotal experience it seems like every suburban mom curates several boards near-obsessively.
If one of these major launches is an iPhone X-like phone with a thumbprint reader (home button or otherwise), they will get at least another $1,000 from me.
I think that I'll be upgrading back to the old one going forward.
And I promise that the next laptop I buy (or my company buys for me) won't have a touch bar or a butterfly keyboard.
I also recently purchased a refurbished 2015 with top tier specs as a personal laptop.
Apple has definitely lost out on thousands of dollars of revenue from just me due to the touchbar/butterfly keyboard feel/butterfly keyboard reliability/usb-c only decisions. And don't even get me started on my inability to replace my iPhone SE with a decent, small phone.
As long as it's optional, I could see people not liking this.
I'm never going to retire my 2013 MBP at this rate.
If they make a one-handed iPhone again, they will also get money from me.
For now, I'm sticking with the 2015 MBP and the SE.
I like to be able to unlock my phone when it's flat on my desk without picking it up.
Alternatively, maybe Macs would increase from 10% to 15% if the product wasn't broken and over-priced. Maybe it would be 20% or 25% if Apple could cross-sell/convert those iPhone sales to Mac sales.
Based on everything else they've done, I figure it will be $3500+ build though and push into the $5k range.
Because the shift to services is exactly what everyone has been clamoring for. Looks like a pretty great quarter for Apple. I think it is the biggest June quarter revenue wise ever.
A nitpick, but I wish people in business would diversify their vocabulary and learn to use words other than "exciting" to describe everything. Calling something exciting does not make it so. Show why it's exciting, don't just claim that it is.
Products are 42.4 - 29.5 = 13 ish Services are 11.5 - 4.1 = 7ish
If the iphone has the same margins as the other products, and about half the product sales are iphones, the services are producing more earnings than the iphone!
(To be clear: the services are delivered through the iphone, so its not like the iphone is not a key part of the services.)
Source https://www.apple.com/newsroom/pdfs/Q3%20FY19%20Consolidated...
They also have the H1 chip in the AirPods, which could potentially be a stepping stone to streaming video from your phone to your headset via an H2 chip.
I don’t see them doing a stand-alone device, or a device with a cable, for awkwardness/dorkiness reasons.
Glasses that are indistinguishable from normal glasses but just pair with your iPhone is the play.
They will make a fortune on premium frames.
Seems like battery size is the limiting factor, but who better than Apple to squeeze a crazy amount of battery into a tiny space. Then there’s heat though. That’s a tough one.
Doesn’t feel like a “this year” thing to me. Feels like a “we’ll release it when the battery/chip tech hits a sweet spot” thing.
Except for iCloud services, which are an embarrassment to technology.
Their contacts management has a 10 year old bug with syncing images and God only knows how they wrote their web app interfaces.
But to your point, since 2008:
- Mac revenue has grown
- iPad was introduced and by itself its revenue and more than likely profit is something that any company would kill for.
- the Apple Watch was introduced and all indications it’s bigger than the iPod ever was.
Regardless of whether you agree they haven't been innovating, my question stands: if they stop innovating, but remain financially successful, will they still be Apple?
They then spent $17 BILLION on share buybacks in the last quarter.
It's not a tech company anymore it's just a financial engineering scheme for large shareholders. If you're a shareholder, good for you!
Not sure what point you're trying to make with this low-effort falsehood. Buy backs are purchased with operating profits, if most of their profits were derived from their massive cash hoard you could label them as an Investment arm or something, but it's coming from their successful business operations and Apple's goal with its Buy Backs and Dividends is to move to a net zero-cash balance, so they have no interest in transitioning into becoming an Investment company.
Even the next Pixel4 is moving to using FaceID, going back to a home button or fingerprint scanner would be a step backwards.
In other words, about a hundred times a day my train of thought is interrupted for a second or two while I stare at my phone and wonder if FaceID is going to work. This is a pretty terrible pattern of disruption. Technology should disappear into the background instead of inserting itself into the foreground of my attention every time I use it. The fingerprint home button was more reliable, and it was much easier to anticipate when it was going to fail because of a wet or dirty thumb.
FaceID fails when your face is not fully visible.
That would be nice and simple if it were true, but it's not. Sometimes it fails when my face is fully visible. Sometimes it works when my face is not fully visible. It can work or not work with the same pair of sunglasses depending on... who knows? Maybe I'm just not smart enough to figure out the exact meaning of "fully visible."
I resisted the button-less form until my buttoned iPhone broke, and I got a hand-me-down X.
Now when I use my iPad, which has a button, there's a brief moment of indignation, "What!? I have to touch a button to unlock this thing!?" every time I use it. It's funny how quickly we get used to things.
That said, I wish the phone wouldn't unlock when I'm just looking at the screen sometimes.
I really like(d) the ability to unlock my phone as it laid flat on my desk using touchid, but my FaceID experience has been virtually flawless.
I really couldn't go back to the huge black bar across the bottom.
The unlock time seems to be less than half a second, so as I look at the phone, it is already unlocked.
And the detection is really good too. After I shaved my long beard and went fully clean-faced, FaceID had zero issues unlocking the phone with zero hiccups for me.
It will let a sibling in too, or at least at a point in the past.
After googling for a bit, I think I found what you have been referencing. Turns out, FaceID learns as it goes, even from non-successful attempts. So if every time your non-identical-twin sister tries to unlock your phone using FaceID, fails, and then you immediately unlock it for her with your face or password, then the system will slowly over time learn to recognize her face as well. This makes sense to me.
- let me hold the phone without blocking the screen
- act as a buffer for cracks: a smaller crack in the corner (the most common kind in my experience) won’t affect your experience.
- mean I don’t have to deal with notches or curved displays
Privilege check: I have large hands, I can single-handedly operate my iPhone 8 Plus with little difficulty. I could see bezel-less allowing greater ease of use for people not like me. If that overcomes the points above... so be it. I’m keeping my 8 Plus for now though.
One feature I'd upgrade for is if Apple completely sealed off their phone and made it waterproof.
You can turn this off in Settings.
But I get what you mean. Even without getting into my inherent distrust of facial recognition systems and the security/privacy implications of creating the infrastructure for it to work reliably, biometrics are usernames. They shouldn't be used as passwords.
It's a quick and easy shortcut to enable the passcode requirement.
EPS: $2.18 vs. $2.10 estimated by Refinitiv consensus estimates.
Revenue: $53.8 billion vs. $53.39B estimated by Refinitiv consensus estimates.
Q4 Revenue guidance: $61 billion to $64 billion versus $60.98 billion estimate by Refinitiv consensus estimates.
iPhone revenue: $25.99 billion vs. $26.31 billion estimated by FactSet.
Services revenue: $11.46 billion vs. $11.61 billion estimated by FactSet.
I like that sentence a lot.
If I had money play with I would buy after this earnings report dropped; but it looks like the stock price isn't getting beat up.
I don't know if I'm just missing the point or something...
If you’re sitting at home playing armchair quarterback with this stuff, all I can say is I hope you’re not responsible for managing any actual money.
Apple did make price adjustment in China, including cutting wholesale price and promotion. I am wondering if those eats into Profits.
Having said that, in the Conference Call:
-Active iPhone installed base grew to a new all-time high in every operating segment ( Including China )
-Install base growing, people are holding onto devices longer, but staying inside the ecosystem
And interesting bit on 5G. Tim Cook says Apple doesn't comment on future products, but says it is "extremely early innings" for 5G, especially on a global basis.
May be we wont even see a 5G iPhone in 2020.
- Apple Music
- iCloud
- App Store / iTunes / Apple Books
- Apple Pay
- Apple Care
- Licensing (i.e. default Google search)
- Apple News+
- Apple Arcade
- Apple TV+
- Apple Card
There is roughly $10 per user paid to Apple ( iPhone, iPad, Mac ) for using Google as default search engine. Last estimate were $9B. Before you ask the Active User and $9B don't align, Keep in mind this is users excluding China, where Google is not available.
And App Store purchase, that is the 30% cut Apple received.
These three item likely combined to be 80%+ of Apple Services Revenue. The rest are iCloud, Apple TV, Apple Music, Apple Card etc..
Seriously, there's just no good reason for a general consumer to purchase an iPhone today. Build quality on the Android devices even in the $200 realm are damn near what the iPhone offers.
For the record: I've used iPhones since 2010. I've never had an Android until this year. It came time to upgrade, and I did my research. Simply put, there's nothing on the flagship iPhone that most vastly cheaper Android phones can do. I'm not a fanboy, I vote with my dollar.
* iOS (I prefer it over android)
* customers already tied into the apple ecosystem
* more of a focus on privacy (admittedly, this one is probably debatable)
In the Android world, I don't think I would recommend anything but a Pixel device just because they get all the security updates and get them faster than Samsung and all the rest.
For the record, my phone is a Pixel 2.
The bigger differentiator though is the app stores. If there's an iOS app or Android app that you need, then the decision is made for you.
For me, being able to iMessage / AirDrop / Facetime people is worth the money just from a people standpoint. Apple has a lot of vendor lock-in, and they still have the most polished product by far.
More so that someone with a 6S or better has little reason to upgrade; the improvements have been incremental.
Also Touch ID over Face ID or offer both or I’m not interested along with millions of others!
Also no Touch ID..pick phone up without looking at it and boom phone is open. Face ID forces user to do more work..swipe up and look. Two more steps I didn’t have to do previously. Those to me as a UX professional who strives to make things easiest as possible equals bad UX. Forcing the user to exert more effort they didn’t have to before.
Apple has always been about ease of use..yet the person in charge of UX (Johnny Ive) thought making things an inch harder would be no big deal, yet look at the amount of phones they aren’t selling these days.
I typically get the latest phone every year (but it starts to feel unnecessary) - iPad's and Mac's, however, last a lot longer (several years) for me these days.
I wonder where the real innovation is going to come from? AI, AR?
If you are looking for something as big as the iPhone, I think you might be disappointed. But, it is a pretty poorly kept secret that they are working on self-driving cars and some kind of "TV".
And Apple has been pretty clear about focusing on growth in services now that they have this massive base of deployed devices.
An approach I'd like for iMessage is to make it free for anyone, but only functional if at least one member of a conversation has an iPhone or paid iCloud subscription.
I just recently switched from Android to iOS and there's a lot I miss about Android that will never come to iOS. I'd love to have that flexibility but cross-platform compatibility too.
I like the recent wave of acquisitions. Smart cars? Smart homes? Iterations of Apple Watch - deeper connection to the body itself?
What's next for them?
Apple Arcade looks surprisingly interesting given they will support PS4/XBox controllers and the trend moves towards streaming gaming. AppleTV+ will do well if they can intelligently bundle it with Apple Music and you never know could have a breakout hit.
AR Glasses and the Apple Car are clearly being worked on given acquisitions but both are many years out.
Apple proved them all wrong and will likely do so again with the glasses. You just need the right killer applications and great design.
While Apple Watch "edition" was a bust, the concept of designer straps and iPhone accessories is still strong.
Apple is like the IKEA of tech + fashion.
Also they messed up really hard when they introduced the new MBP keyboards which now all have to be replaced.
The iPad started to be useful much too slow and in the meanwhile less and less people would even consider it when comparing with a surface.
There is one more thing: The ecosystem seemed to be cool some day. Now it's nothing special anymore and it's not really magical how many things don't work together (because software, bugs, whatever...).
I buy the nice devices as used parts because they had times when they produced some cool stuff that I still like to use. Maybe not with their OS but this will probably change when less money gives them more pressure to be innovative again.
They've been coasting since then. Difference sizes of the same product. The watch was about as far as they've wandered out of their comfort zone.
Wealth creation is not zero sum, 100 years ago we had far less wealth than we had today and in 100 years we’ll have a lot more.
Sure, an individual company can stop growing but everything must continue to grow in aggregate to push humanity forward.
People are realizing they can buy a OnePlus 6T or Samsung 9 for half the price.
My wife has been fed up with our older Android phone and said - we're going back to the iphone. We looked up the prices for the latest, second latest, third latest iphone models and then she said - why don't we get another OnePlus.
13% drop in sales won't make their services popular.
They should have launched 5 years ago, they had way more advantage then.
They do still have a big consumer base, but 13% is a lot and it doesn't seem to go upwards.
https://www.cnbc.com/2019/07/31/wall-street-analysts-worry-a...
Huawei: Revenue Growth 23.2% (half-yearly)
Apple: Revenue ~$258 billion
Huawei: Revenue ~$105 billion
Apple: R&D $14 billion[0]
Huawei: R&D $15 billion[1]
Apple: Employee Count ~132,000
Huawei: Employee Count ~188,000†
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I'm going to take an unusual step here. Please, please don't downvote this post for pointing this out! I'm just highlighting for contrast, not for criticism. Trying to start a conversation.
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[0] https://www.nasdaq.com/article/apple-aapl-earnings-after-the...
[1] http://www.chinadaily.com.cn/a/201904/09/WS5cac0859a31048422...
† “Huawei had over 188,000 employees as of September 2018, around 76,000 of them engaged in Research & Development (R&D)” (I presume Apple has tens of thousands employed in r&d, anybody any idea roughly how many?)
edit: sigh
In Job's era that revenue was almost 0%. Now it's 21%.
The Apple Watch is the world's most popular watch.
AirPods have exploded in popularity among youth as a status symbol.
Both are selling relatively well, even if you may think they're inferior products.
That's a lot of nobodies.
(compared to Mac $5.8B, iPad $5.0B)
I use a smartwatch and as a result my phone stays in my pocket a lot more.
No thanks.
Regular corded earbuds are a tolerable pocket size alternative to a set of studio cans, but that’s as far as I would go. I miss the old Walkman style headsets that had decent size drivers, but still fit into a backpack or jacket pocket.
* Competing brands with better hardware quality (Pixel's camera vs iPhone) * Competing brands with less opinionated design choices (headphone jacks, expandable storage, et all) * Highly specialized supply chains prevent flexibility in part choices/manufacturers (ex: designing custom screws for iMac chassis, rather than using off-the-shelf parts) * Unnecessary complexity in designs (The HDMI/lightning adapter is actually a computer that essentially runs a program in RAM) * Trade wars cooling relationships with everything from shippers * Walled garden of iMessage preventing soft user migration