The Six Five team discusses Apple’s latest earnings.

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Transcript:

Daniel Newman: I said it in my tweet and you could interpret this as a good or a bad thing. The company is like, a sleight of hand. There was not a single indicator that iPhone would have a good quarter, based upon what was going on in the macro, based on even the IDC numbers on PC shipments. Everything that was out there about devices was indicating that this should be a really bad quarter. Now again, Apple’s approach to guide is late. They don’t guide far out. They also-

Patrick Moorhead: They don’t guide. They haven’t guided since 2020.

Daniel Newman: They indicate in their earnings calls, a feeling for the next quarter. But they do not specific… you’re right. And they don’t give you more than what’s kind of their thought process over the next 90 days. And again, they don’t even give you specifics. So this leaves the analysts having to basically guess. And so, their beat may or may not actually have been any sort of beat of what their expectations were, but what the analysts could come up with, they were expect – And Pat, by the way, just $94 billion a quarter in revenue, they beat on the top. They beat on the bottom. Again, they beat the analyst expectations, not the guide. They expanded margins and they were pretty stable across all categories.

Now again, this doesn’t mean I don’t think they’re most, that this is the company that requires the most regulatory out of any company on the planet right now and getting none. But that’s another story for another day, because let’s instead regulate VMware, because that’s the big problem. But anyways, the areas that I was looking for Pat, really is – well, I’m watching closely the service on this company, because this is the big pivot. You saw they had this really interesting inflow of… are they a bank now? I mean, what’s happening there? Is Apple actually a charter bank or is that a partnership?

Patrick Moorhead: No. I mean, they’re definitely getting in… well, no. I don’t know.

Daniel Newman: It’s okay. I didn’t actually look into it yet either. But when you hear about inflows of deposits, then you go, wait, is Apple a bank? But I mean they’re getting into financial service products for sure… FinTech products. I mean, they always were with Pay. But services, the investments they’re making in Plus and TV and gaming, they’re getting across the board. I mean look, they were a little soft on iPad, the Mac business we know is crappy, and they were a little bit soft on that. But Pat, I guess what I was trying to explain is it, where is the sleight of hand? How do you beat by $4 billion worth of phones versus what everybody had been able to calculate? So the calculus of all these analysts, and there’s a lot of analysts on the equity side that follow Apple, calculated 48.8 and they came up in at 51.3.

Where’s all this demand coming from? Is it India, is it China? And it’s a really interesting inflection right now because you know, you saw Qualcomm’s mobile numbers, really, really soft. And of course Apple’s buying volumes ahead. The timing means Qualcomm’s numbers may have come in quarters back, and now Apple’s numbers are coming in on finished product, and now they’re sitting on inventory. But there was nothing to indicate in the market that the consumer’s strong. And for Apple, it’s consumer strength that drives the volume of purchases. And all we keep hearing about is the market’s on stilts, consumers are depressed, their savings are gone, but they’re still buying $1,600 iPhones. So that’s my puzzle point, Pat, I’d love to get your take on it… this was a really pretty good quarter and the street is rewarding Apple right now, big time, for this result. I didn’t see it, I’m going to be honest, I just didn’t see them doing this well.

Patrick Moorhead: Yeah, and by the way, they’re ripping right now this morning. They’re number two on my watch list. So the way that I look at this is, is really balanced. And by the way, there were a lot of questions where hey, they could rip it or they cut. Where I’ve wound up based on listening to the transcripts and talking to a bunch of people… by the way, shout out to Jon Fortt and Morgan Brennan. I did CNBC literally as they were reporting at 4:30 Eastern.

Daniel Newman: And you crushed it.

Patrick Moorhead: Thank you. I think there was pent-up demand where if you remember, iPhone production, their workers were getting beaten with metal poles and they were essentially striking. And I think this was pent-up demand. There were talks about strength in India. There was also… Tim Cook did an interview with CNBC, literally as I was sitting there, and they were talking about strength in China, but nobody could figure out how that even makes any sense whatsoever. So anyway, they grew 1% year-on-year in smartphones and they did beat expectations by about 5%. If I look at what’s in store for the future, if all of that pent-up demand is swept out, I can’t imagine them doing very well next quarter. But you know, you never know. I mean, I look at Qualcomm’s forecast and there’s always a 60 and 90 day delay between the silicon and the actual production and shipment of a unit.

And I don’t know exactly, having distribution hubs when revenue is recognized by Qualcomm, but I can’t imagine the juggernaut continuing. And the other macro point is everything else went down below expectations. Service is below expectations, MAC, well below expectations; iPad, met or a little bit below expectations; wearables below expectations. None of these are good signs, but none of these are self-inflicted, and they are driven by the market. At WWC, I’m looking forward to what they talk about with respect to XR. They’re late to the party related to generative AI, and they really needed to get their act together. If this were a time – Apple doesn’t have to be first, they just can’t be two years late, like they were with something like the Fablet.