Apple 3Q23 10-Q Takeaways, Apple's Share Buyback Update, Apple R&D Expense Growth Slows

Happy Wednesday. Today’s update will conclude our Apple 3Q23 earnings review.

In today’s update, we will go over Apple’s 3Q23 10-Q. We will then discuss Apple’s latest share buyback and R&D expense trends.

Let’s jump right in.

Apple 3Q23 10-Q Takeaways

Published at the end of FY1Q, 2Q, and 3Q, 10-Q filings provide additional commentary and disclosures regarding a company's business and financial results.

The following items from Apple's 3Q23 10-Q jumped out at me.

Product Details. Apple provided additional commentary behind sales trends for its major product categories.

  • iPhone. Net sales decreased in 3Q23 due “primarily to lower net sales from certain iPhone models, partially offset by higher net sales of iPhone 14 Pro models.” Based on that wording, higher iPhone ASP was registered in 3Q23 causing iPhone revenue growth to exceed unit sales growth. My model has iPhone ASP up 4% while unit sales were down 6%.

  • Services. Net sales increased in 3Q23 due “primarily to higher net sales from advertising, cloud services, and the App Store.” Last quarter, the ordering was cloud services, music and advertising. Advertising includes licensing revenue. App Store revenue was likely up a few percentage points year-over-year.

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Apple 3Q23: By the Numbers, The Most Impressive Apple Number, About That Weak iPad Number

Today's special Friday edition of the Daily Update will be focused on reviewing Apple’s earnings. The idea is to keep things broad and look at the big picture takeaways. We also examine how Apple’s results compared to Neil’s expectations. The discussion will continue next week.

Hello everyone. We will begin reviewing Apple's FY3Q23 results. Let's jump right in.

Apple 3Q23: By the Numbers

The themes that guided the past few quarters for Apple were present in the company’s FY3Q23 results. Emerging markets strength is being offset by a slowdown in iPhone upgrading in the U.S. Meanwhile, solid Services revenue generation is being offset by weak Mac and iPad results. The result is mostly flat revenue growth with FX continuing to serve as a growth headwind (Apple’s FX hedging program creates a lag in receiving any weaker dollar benefit).

This past Monday, we went over three factors that point to FY2024 being a better one for Apple financially. Following Apple’s FY3Q23 results and earnings call, there has been no change in my thinking.

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My Apple 2Q23 Estimates, Expectations for Apple's Capital Management Changes, My Revised Apple Earnings Model (Daily Update)

Apple reports FY2Q23 earnings on Thursday. Today’s update contains the second half of Neil’s earnings preview. The first half is available here. The update begins with Neil’s granular financial estimates. The discussion includes qualitative explanations for each of Apple’s product categories. We then look at Neil’s expectations for what Apple will announce regarding its cash dividend and share repurchase authorization. We conclude with Neil’s updated Apple earnings model and how the model has changed over the past three months. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost.

Hello everyone. Similar to previous quarters, with Apple releasing earnings tomorrow, Thursday’s update will be pushed out a day so that there is a special edition Friday version of the daily update.

Let’s jump into the second half of my earnings preview.

My Apple 2Q23 Estimates

Here are my granular estimates for Apple’s 2Q23:

  • Revenue: $95.7B (consensus: $93.0B)

  • Overall gross margin: 44.6% (guidance: 43.5% to 44.5%)

  • Gross margin (HW): 37.5%

An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.

(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)

Above Avalon Membership

Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.

More information about Above Avalon membership, including the full list of benefits and privileges, is available here.