Notes of interest from Apple's Q3 2016 conference call

AppleInsider

Apple's sales continue to decline across its three major platforms --?iPhone, iPad and Mac --?but the year-over-year losses weren't quite as bad as the market had expected. After reporting the results of its June quarter, Apple executives gave commentary and fielded questions, and notes of interest from the conversation follow.

Participating in Tuesday's conference call with analysts and members of the press were Apple Chief Executive Tim Cook and Chief Financial Officer Luca Maestri.

Highlights

• Demand for iPhone SE outstripped supply throughout the quarter, prompting Apple to add capacity
  
• Apple saw its highest level of switchers to the iPhone ever
  
• iPad saw its best result in 10 quarters, with revenue up 9 percent year over year
  
• Apple's services business also saw 19 percent growth and will be the size of a Fortune 100 company next year
  
• iPhone average selling price fell $595 due to popularity of the iPhone SE. ASPs are expected to increase next quarter
  
• Apple finished the quarter with $231.5 billion in cash

Apple's iPhone business

iPhone SE is seeing strong sales in both established and emerging markets.

Apple added "millions" of first-time smartphone buyers in the quarter.

Active install base of iPhones is up double digits year over year.

iPhone install base has grown 34 percent year over year in China alone.

Apple did its largest channel inventory reduction in China. Cook said the results there are stronger than the numbers suggest.

Total revenue from Greater China was almost $40B in the first three quarters of this fiscal year.

iPhone sales in India were up 51 percent year on year in the same period.

Cook hyped the upcoming development accelerator for iOS in India, as well as new Maps development center.

Cook said he sees "huge potential" in India.

Apple's services business

Services grew 19 percent in the quarter, totaling $6 billion

App Store revenue was at an all-time high.

Services revenue is up over $4B year over year to $23.1 billion. Apple expects it to be the size of a Fortune 100 company next year.

Apple's iPad business

iPad saw its best result in 10 quarters

Half of iPad Pro purchases are buying for work.

Apple attributed growing revenue to the 9.7-inch iPad Pro.

iPad ASP increased to $490 thanks to iPad Pro.

Among US consumers planning to purchase a tablet in the next 6 months, 63 percent plan to buy an iPad, Maestri said. iPad Pro is the top choice for planned purchases.

Corporate buyers have a 94 percent satisfaction rate with iPad, with a 71 percent purchase intent.

Apple Watch business

Apple said it remains the best selling smart watch in the world.

Tim Cook hyped this fall's launch of watchOS 3.

Apple's Mac business

Mac is gaining a "high percentage of new customers," Maestri said.

The Mac install base ended with a new all-time high at the end of the June quarter.

Still, sales were down 11 percent to 4.3 million. Maestri cited a tough comparison from the same quarter a year ago.

evilution

Update the Macs and people will buy them. Anyone who wanted the current models probably will have bought one already.
I'm looking at a Mac Pro for my new business but I can't bring myself to spend that much on a 3 year old design that could be updated at any time.

slprescott

Tim hinted at 2 growth areas:

1. AR/VR: he mentioned this several times -- enthusiastically. Something's coming.

2. TV & Content: His final Q&A response was about Apple TV. Paraphrase: "Don't look at our current offering as the full realization of our vision; it is not. It is just the foundation for what we will add in the future."

gatorguy

slprescott said:

Tim hinted at 2 growth areas:

1. AR/VR: he mentioned this several times -- enthusiastically. Something's coming.

2. TV & Content: His final Q&A response was about Apple TV. Paraphrase: "Don't look at our current offering as the full realization of our vision; it is not. It is just the foundation for what we will add in the future."

With the massive attention that Pokemon Go attracted I imagine that AR/VR is very high priority now if it wasn't a month ago. 

ration al

It's a little strange that Other Products Revenues are down Y-O-Y by only about $ 422,000,000 (16%) in the quarter despite IDC's Smartwatch Market Report stating that  Apple's shipments were down by more than half to 1.6 million from 3.6 million units in last year's launch quarter. Hmmmmmmm.

Maybe they made up the difference in watchband sales?

kevin kee

ration al said:

It's a little strange that Other Products Revenues are down Y-O-Y by only about $ 422,000,000 (16%) in the quarter despite IDC's Smartwatch Market Report stating that  Apple's shipments were down by more than half to 1.6 million from 3.6 million units in last year's launch quarter. Hmmmmmmm.

Maybe they made up the difference in watchband sales?

I take that your point is never ever believed IDC. Which I agree with you.

512ke

One thing the company can't do, is claim that it will grow based on services and software. The reason is that, if Apple's hardware sales decline, so does its pool of buyers for services and software.

This would be different if Apple created original content (apps, movies, series). Then Apple could sell to Android and Windows users. Original content would also give a compelling reason to stay within the Apple ecosystem.

cali

gatorguy said:

slprescott said:

Tim hinted at 2 growth areas:

1. AR/VR: he mentioned this several times -- enthusiastically. Something's coming.

2. TV & Content: His final Q&A response was about Apple TV. Paraphrase: "Don't look at our current offering as the full realization of our vision; it is not. It is just the foundation for what we will add in the future."

With the massive attention that Pokemon Go attracted I imagine that AR/VR is very high priority now if it wasn't a month ago. 

And Apple should have bought Nintendo a year ago.

512ke said:

One thing the company can't do, is claim that it will grow based on services and software. The reason is that, if Apple's hardware sales decline, so does its pool of buyers for services and software.

This would be different if Apple created original content (apps, movies, series). Then Apple could sell to Android and Windows users. Original content would also give a compelling reason to stay within the Apple ecosystem.

Original content wouldn't help Apple if it was also available on android knockoffs.

welshdog

I'll be 60 years old next May. I'm not afraid of much, but I do live in fear that the day might come where Macs no longer exist.  It is fairly easy to believe that Apple might choose to kill Macs as a business decision.  I wish Apple would consider a marketing push to get more PC to Mac switchers.  It would also be nice to see more Macs ads.

It's hard to imagine life without a Mac.

josha

evilution said:

Update the Macs and people will buy them. Anyone who wanted the current models probably will have bought one already.
I'm looking at a Mac Pro for my new business but I can't bring myself to spend that much on a 3 year old design that could be updated at any time.

I just bought a MacBook Air.  It seemed expensive compared to the cheap Windows laptops out there.
But the MacBook Air is great portable computer, running great software.

It's time I replaced my MSI netbook WinXP fiddle and became modern.

g-news

So it takes Cook a full quarter to realize the iPhone SE manufacturing capacity needs to be boosted? I've been waiting for mine for 2.5 months now. They simply don't want to sell too many of these things because they're lower marging than the 6s. I'm really starting to dislike the current management.

fastasleep

g-news said:

So it takes Cook a full quarter to realize the iPhone SE manufacturing capacity needs to be boosted? I've been waiting for mine for 2.5 months now. They simply don't want to sell too many of these things because they're lower marging than the 6s. I'm really starting to dislike the current management.

2.5 months? You sure you hit the buy button?

tallguy

welshdog said:

I'll be 60 years old next May. I'm not afraid of much, but I do live in fear that the day might come where Macs no longer exist.  It is fairly easy to believe that Apple might choose to kill Macs as a business decision.  I wish Apple would consider a marketing push to get more PC to Mac switchers.  It would also be nice to see more Macs ads.

It's hard to imagine life without a Mac.

I can see that happening for sure but until the day comes where an iPad Pro has 32-64GB of RAM and can allow me to print to my Epson Pro printer like my MBP can I will be sticking with a Mac.

g-news

fastasleep said:

g-news said:

So it takes Cook a full quarter to realize the iPhone SE manufacturing capacity needs to be boosted? I've been waiting for mine for 2.5 months now. They simply don't want to sell too many of these things because they're lower marging than the 6s. I'm really starting to dislike the current management.

2.5 months? You sure you hit the buy button?

Yes, me and hundreds of other customers here who have been waiting for even longer.

slprescott

g-news said:

fastasleep said:

2.5 months? You sure you hit the buy button?

Yes, me and hundreds of other customers here who have been waiting for even longer.

I do wonder if Apple was deliberately very precise in how many iPhone SEs they manufactured this quarter:
  - enough to show growth of the overall iPhone category (I.e., satisfy Wall Street)
  - but not enough to meet all demand, hoping that some buyers may change their minds to get the new phone in September

cropr

I don't understand that Tim Cook said he saw the highest level of iPhone switchers, while having 15% less iPhones sold in Q2  and losing almost everywhere market share. Did I miss something?

ration al

cropr said:

I don't understand that Tim Cook said he saw the highest level of iPhone switchers, while having 15% less iPhones sold in Q2  and losing almost everywhere market share. Did I miss something?

Yeah you missed something.

What if:
1) Some Android users fed-up with lack of OS updates getting their first iPhone, the recently launched and affordable SE model.
2) Fewer current iPhone users upgrading because we're long into the last product cycle with a new one on the horizon.
3) Still far more Android users churning to their next Android phone to get newer OS.

and presto! 

ration al

cali said:

gatorguy said:

With the massive attention that Pokemon Go attracted I imagine that AR/VR is very high priority now if it wasn't a month ago. 

And Apple should have bought Nintendo a year ago.

I would suggest buying Niantic instead, as they published the game and made the profits. Nintendo has admitted that they make diddly-squat from Pokemon Go.

cropr

ration al said:

cropr said:

I don't understand that Tim Cook said he saw the highest level of iPhone switchers, while having 15% less iPhones sold in Q2  and losing almost everywhere market share. Did I miss something?

Yeah you missed something.

What if:
1) Some Android users fed-up with lack of OS updates getting their first iPhone, the recently launched and affordable SE model.
2) Fewer current iPhone users upgrading because we're long into the last product cycle with a new one on the horizon.
3) Still far more Android users churning to their next Android phone to get newer OS.

and presto! 

It is not about the market that I missed something,  It is about mathematics. The Android market share went up, the iOS market share went down, the total market remained roughly equal and yet according to Tim Cook  the number of Android to iOS switchers should be at their highest levels ever.  This is for me mathematically impossible.  Maybe he used Numbers to calculated the switchers, this could be an explanation

brucemc

cropr said:

ration al said:

Yeah you missed something.

What if:
1) Some Android users fed-up with lack of OS updates getting their first iPhone, the recently launched and affordable SE model.
2) Fewer current iPhone users upgrading because we're long into the last product cycle with a new one on the horizon.
3) Still far more Android users churning to their next Android phone to get newer OS.

and presto! 

It is not about the market that I missed something,  It is about mathematics. The Android market share went up, the iOS market share went down, the total market remained roughly equal and yet according to Tim Cook  the number of Android to iOS switchers should be at their highest levels ever.  This is for me mathematically impossible.  Maybe he used Numbers to calculated the switchers, this could be an explanation

The firms which calculate the total market, market share, etc, are not exactly dealing with precise numbers.  A lot of fuzziness in there.  So a "few million" here or there is not altering this fact.  Also, don't forget the marketshare they are calculating is units shipped in a time period - not installed base.  

All this means is that the % of iPhone sales which went to switchers, vs. first timers & upgraders, was higher.  Nothing mysterious there in the numbers.

ration al

cropr said:

ration al said:

Yeah you missed something.

What if:
1) Some Android users fed-up with lack of OS updates getting their first iPhone, the recently launched and affordable SE model.
2) Fewer current iPhone users upgrading because we're long into the last product cycle with a new one on the horizon.
3) Still far more Android users churning to their next Android phone to get newer OS.

and presto! 

It is not about the market that I missed something,  It is about mathematics. The Android market share went up, the iOS market share went down, the total market remained roughly equal and yet according to Tim Cook  the number of Android to iOS switchers should be at their highest levels ever.  This is for me mathematically impossible.  Maybe he used Numbers to calculated the switchers, this could be an explanation

I know you're only trolling but try to keep up with the rest of the class,

If you think through what I theorized above, and bear in mind that market share (a measure of sales in a given period) is different from market size, then you might see the light. If the market expands (smartphones are getting cheaper) more in relation to the number of users Apple can take from Android, then Apple loses market share and the math works fine, regardless of which spreadsheet you use.