My Thoughts On The Apple Earnings Call

The Apple earnings call on monday the 26th of January – for its fiscal first quarter. There was lot of talk from these so-called consults; that we would see decline in iPhone sales and in revenua and in the end was the so many times heard sentence…APPLE IS DOOMED. So what did actually happen then? Well Apple delivered, again, and hit all those consults with a hammer right to the face.

What can we mirror from the Apples results to the whole mobile/pc/laptop industry? A lot actually and here is my take on them, but I am not a finance guy, so I’ll just state that right at the start. These are purely my opinions about Apple earnings and how we can compare the situation with rest of the industry.

Apple earnings hoggs all the monies

So the last quarter (from September to December) was again a record setting quarter for Apple. The turnover was 75,9 billion dollars and net profit another record with 18,4 billion. These sound like big numbers, which they of course are, but we clearly can see that the peak is already gone and the earnings have already dipping if you compare them to the previous ears. This is kind of expected as the mobile markets are already being over saturated.

Not to mention the iPhone 6S might not have been the upgrade that people would have wanted, but still those numbers are huge even if the increase in sales and Apple earnings growth are already slowing down. We can split the earnings to four different sections: iPhone, iPad, Apple Watch and Macs.

 

iPhone is still the king

iPhone is still the product that brings the biggest revenues to Apple earnings. Last quarter Apple shipped a record setting 74,8 million iPhones. If you compare that to the last years amount of 74,5 million we can see that the increase is pretty small. In the light of these numbers we can easily say that Apple is an iPhone company, as over 68% of it’s income comes from the iPhone. Relying on a one products revenue is never a good thing, but atleast Apple is still selling other products (although their volumes are declining constantly).

The reason for the almost stagnant numbers for the iPhone? I think the biggest reason is last year when the iPhone 6 came out. With the iPhone 6 Apple pretty much answered the need for an iPhone with a bigger screen, and that will also show with the 6S. So when we think about the 6S which is not really a big upgrade from the last years 6 it would have been a bigger surprise if Apple would have sold a lot more. Also the carrier contracts (always a two year contract) come in to play here, atleast in the US and many propably will just skip the S upgrade and wait for the iPhone 7 coming later this year.

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iPad continues to be in trouble

Apples second segment, the iPad, is the one that is actually struggling. Compared to last years Apple earnings, the iPad volumes went downhill over 25%. That is a huge percentage. This is clearly the section that Apple is having the most trouble with.

The whole iPad segment is facing the same problems like every tablet manufacturer at the moment. Consumers don’t really see the added value in the new models as their old tablets still work fine. Even the new iPad Pro won’t be helping here as the price point is way beyond a normal users budget and they will be fine with the iPad Air or Air 2. We can’t dismiss the bigger screened phones here either as they clearly have impacted the tablet market as many of the consumers might just be happy with their iPhone 6/6S Plus and it’s big screen. They might even have ditched their tablet all together. I pretty much did atleast.

Watch and the “other” segment

Apple still didn’t release the volumes of its smart watch in the Apple earnings call – which is more than a little bit strange. Are the shipping volumes for the Watch so low that Apple is embarrassed to release them? We propably will never know – still the ‘Other’ segment of Apples product lines (Where the Apple Watch is also located) increased its turnover by 62%. There has been estimated based on this number which would put the shipping volumes of the Apple Watch to something like 4-5million which indeed seems pretty low for a holiday period.

Smartwatches are still a niche product and many are fine without one and others just can’t live if it isn’t strapped on to their wrist. I still think the Apple Watch outsells every Android Wear watch combined, you just look the numbers. We all know how well those Android Wear watches move off from the shelves right.

Apples services category was the other bright spot bringing 26% growth from last year.

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Macs, another eyesore

Apple earnings in laptop and computer segment was also hit with a 3% decrease in turnover compared to last year. This has been a trend with Macs and also every company that makes computers. It’s actually pretty hard to even guess why this is like it but – I would think it’s because people don’t buy new computers so often and their current year or two year old computers still work fine so no need for new ones. Some even use machines that are five to six years old, as the saying goes, if it isn’t broken – don’t fix it goes very well here also.

The whole industry is in decline

So what does the Apple earnings numbers have anything to do with the whole mobile and PC industry? I think these numbers (particularly this year) mirror the other industry companies in a larger scale. At the moment the cold and hard truth is that computers or laptops are not the products that keep your company in revenue. They might keep you alive and kicking but I would take a wild guess that you are not going to see any big revenues.

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If you think about companies like Apple, Samsung, LG there is one thing that links them and that is mobile. Every one of these three have lot of different business segments or products in their catalog but the revenue is by and large coming from phones. Take LG for example – they sold 60million phones last year (not a really big number if you compare it to Apples quarter and their 74,8 million sold iPhones) and 15,3 of them in the last quarter. LG still isn’t getting any profit from their phones but it’s getting better and better as they say in their report.

Same thing is happening at Samsung to a certain extent. Although Samsung is totally different beast with an apparent strategy to roll-out as many different phones to different price ranges. Even a biggest phone enthusiast is going to have a really hard time trying to keep up with them. It seems though that Samsung is now shifting strategy and just producing fewer phones to different segments, with the S line being the flagship and then comes the A line with the cheaper price points.

The future is looking exactly the same

There have been talks about Apple and it’s skill to bring in the big revenues every year. Year 2015 might be the year when this ends and there is a clear reason for it. Everything has a peak and after that peak point is reached it’s clear that the path will be a downward one. I am not saying that Apple will start to dip in everything drastically but they propably won’t be having such big turnovers anymore. They also seem to already know this – predicting slowing iPhone sales numbers.

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Apple also need to start thinking what to do with the iPad line as these are the things they clearly need to renew. The last few updates have been really small – simply making the device lighter and thinner and adding something small. Now would be the time to reveal something really nice hardware. I would guess there won’t be anything big or new in the software as we already know what iOS 9.3 brings and iOS 10 is to be revealed in WWDC this summer. This chapter could be written for every company in the tablet business as the market is really stagnant and feels like it’s in a “waiting mode”.

Same goes with the mac business. Of course it’s much harder to bring new awesome features to laptops or desktop Mac’s than it’s to the iPhone. You just can’t bring a “lighter and thinner” revision every six months with a faster cpu etc. Consumers need something bigger to invest to a new Macbook Pro or iMac from the last years model.

I should propably end this with the sentence “Apple is from now on totally DOOMED” like it seems to be every time new year starts. However as I said, we propably won’t be seeing the same kind of numbers from Apple earnings this year. The interesting part is to see if the other manufacturers capture any of the revenues from Apples decline.

It has been pretty much Apple vs Samsung until now. Maybe we will actually see new contenders rising to take their piece of the cake. I am looking at you LG and Huawei. All in all we have another interesting year of technology coming and that is the good and important thing.

About Juha Uotila

Tech Lover from Finland. Consumes lot of metal music. Consumer of craft beers. Also showing some signs of #phonehoboism.

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