Apple earning calls with analysts can be fascinating glimpses behind the scenes at the iPhone-maker. Most of the time, though, they are dull as toast. That’s true even for the June quarter, when Apple managed to pull financial success from the jaws of supply constraints.
But we endured the tedium of the call so you don’t have to. Just read on to get the interesting details almost lost in talk of basis points and CAPEX.
1. Apple squeaked out a win
The April-through-June quarter was very tough for Apple. Supply constraints and COVID lockdowns in China slowed Mac and iPad assembly to a crawl.
When CEO Tim Cook was asked Thursday by an analyst about Mac demand, he said, “You can’t really test the demand unless you have the supply… and we were so far from that last quarter.”
While, Apple overcame the challenges to beat analysts’ pessimistic expectations and set a new June quarter revenue record.
Luca Maestri, Apple’s chief financial officer, said during the call. “We’re very pleased to report June quarter financial results that continue to demonstrate our ability to innovate across hardware, software and services while operating our business effectively during very challenging economic circumstances.” — Ed Hardy
2. More businesses are adding to Apple’s bottom line
During the June earnings quarter call, Cook and Maestri repeatedly noted that the install base of Apple devices reached an all-time high during the period.
As part of that, Maestri pointed to strength and probable ongoing growth of sales in the enterprise market. In other words, businesses turn to Apple products.
He pointed out that, while iPad revenue of $7.2 billion was down 2% year over year due to supply constraints and pressure from foreign exchange rates, demand was strong across consumer education and enterprise markets globally.
And the iPad installed base reached a new all-time high, with more than half of customers buying one during the quarter being new to the product.
“Our customers are investing in Apple products as a strategy to attract and retain talent,” he said, citing Bank of America providing iPhones to all of its financial advisors, and Wipro and others offering M1 MacBook Air laptops to new recruits.
“And with the new M2 chip powering MacBook Air and the 13-inch MacBook Pro, we expect more customers to make Mac available to their entire workforce,” he added. — David Snow
3. iPhone growth comes from former Android users
The active installed base of iPhone users reached another new record in the June quarter, though the Apple executives didn’t give an exact figure. And much the growth is coming from people switching away from Android.
“We also attracted a record number of switchers for the June quarter with strong double-digit year-over-year growth,” bragged Maestri.
That helped iPhone revenue increase 3% annually during the April-to-June quarter. It’s at $40.7 billion, a quarterly record. — Ed Hardy
4. ‘Cocktail of headwinds’ hit certain Apple products harder
Foreign exchange rates, supply constraints and pulling out of Russia after the country’s invasion of Ukraine is negatively affected all Apple products to one extent or another. But one division of Apple’s business faced even more troubles during the bumpy quarter, according to Tim Cook.
“We saw sort of a cocktail of headwinds on wearables, home and accessories,” he said.
Product launches like AirTag in 2021 gave that year an advantage over 2022 for this slice of Apple’s business. But something else seemed to be at play, too.
“We believe, based on the data, that there was also a macroeconomic environment hit,” Cook said.
It could be because products in this category have a lower average selling price when compared to the iPhone – or it could just be that consumers are getting spooked by rising inflation and cutting back on discretionary spending. – Lewis Wallace
5. Apple doesn’t even know how many Macs it could have sold
Apple warned us last quarter that COVID-19 lockdowns in China and related supply chain chaos would take a severe bite out of revenues. But when it came to a pair of products that soared during the pandemic’s new work-from-home normal, even Cupertino’s talented bean counters couldn’t get an accurate read on the impact.
“Mac and iPad were so gated by supply that we didn’t have enough product to test the demand,” Cook said.
Elsewhere in the constellation of Cupertino’s portfolio, some services – digital advertising in particular – took a heavy hit. But the iPhone weathered the quarter’s macroeconomic storm particularly well.
As is his way, Cook put a very positive spin on Apple’s ability to thrive even during troubled times.
“Overall, we’re very happy with the results,” he said. “And when you think about the number of challenges in the quarter, we feel really good about the growth that we put up for for the quarter.” – Lewis Wallace
5. Apple keeps looking for things to buy
When asked about things Apple might buy to keep its services sector growing – especially in light of the recent decline in stock market valuations – Cook sounded like a hawk on the hunt for tasty prey.
“We always look,” Cook said, “and we, you know, ask ourselves … how strategic it is. And, you know, we never buy just to buy, or buy just for revenue purposes.”
He said that, so far, Apple tends to train its eye on “smaller [intellectual property] and people acquisitions.” But that doesn’t mean Apple won’t flex its apex predator muscles sometime soon.
“I wouldn’t rule anything out for the future,” Cook said, “and obviously we are constantly surveilling the market.” – Lewis Wallace
6. Tim Cook is so optimism about Apple
During his prepared statements to analysts, Tim Cook waxed philosophic about the company:
“This quarter has ultimately been a reflection of our resilience and our optimism. As we look forward, we’re clear eyed about the uncertainty in the macro environment. Yet we remain ever focused on the same vision that has guided us from the beginning. We strive every day to be a place where imagination ignites innovation like nowhere else, where good people come together to achieve great things, where customers are the center of everything we do, and we’ll continue to execute on that vision, as we always have, led by a focus on excellence and a desire to lead the world better than we found it.”
— Ed Hardy
7. Looking ahead to Apple’s better August quarter
Cook is not the only optimism one at Apple. CFO Maestri said Thursday, “Overall, we believe our year over year revenue growth will accelerate during the September quarter compared to the June quarter.”
Apple’s revenue increased 2% year over year in the June quarter, so the CFO is predicting stronger revenue growth than that.
As COVID-related assembly problems are a thing of the past (at least for now) allowing Apple to start catching up with demand for its products there is reason for that optimism. — Ed Hardy