iPhone Sales Angst Continues, Sales on Apple Products Spread, Tesla Announces 10% Layoff

We kick things off with my thought’s on iPhone sales trends in the first three months of 2024. The discussion then turns to more retailers running with surprisingly large discounts on Apple products. We conclude with Tesla layoffs.

An Above Avalon membership is required to read this update. Members can read the full update here. (Members: Daily Updates are accessible via the archive. If you haven’t logged into the archive before, fill out this form to receive an invite.)

Choose either a monthly or annual membership. Payment is hosted by MoonClerk and secured by Stripe. Apple Pay and other mobile payment options are accepted. After signup, use this link to update your payment information and membership status at any time. Contact me with any questions. 

Contact me directly if you would like to purchase multiple subscriptions (five or more) for your team or company.

An audio version of the newsletter is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here. Special Inside Orchard bundle pricing is available for Above Avalon members. Additional membership customization is available via the Financial Models add-ons.

Walmart Begins Selling $699 M1 MacBook Air, Apple Becomes Aggressive with MacBook Air, Revisiting Mac Sales

Hello everyone. Today’s update will be dedicated to Walmart beginning to sell the Mac for the first time. The announcement is tied to Apple running with new entry-level pricing for the MacBook Air. There are a few angles to the news worth discussing.

Let’s jump right in. 

An Above Avalon membership is required to read this update. Members can read the full update here. (Members: Daily Updates are accessible via the archive. If you haven’t logged into the archive before, fill out this form to receive an invite.)

Choose either a monthly or annual membership. Payment is hosted by MoonClerk and secured by Stripe. Apple Pay and other mobile payment options are accepted. After signup, use this link to update your payment information and membership status at any time. Contact me with any questions. 

Contact me directly if you would like to purchase multiple subscriptions (five or more) for your team or company.

An audio version of the newsletter is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here. Special Inside Orchard bundle pricing is available for Above Avalon members. Additional membership customization is available via the Financial Models add-ons.

The State of the Mac (Above Avalon Report)

An examination of Apple’s oldest product category.

Written by Neil Cybart - November 21st, 2023

Three years into the Mac’s Apple Silicon transition, the product category has never been stronger. It’s a stark difference from where the Mac was a decade ago. And yet, Mac sales are back to the same level as they were pre-Apple Silicon. This report reflects on where the Mac has come from and where it is going as Apple heads into spatial computing.

The Mac’s Past

The 2010s represented a complicated decade for the Mac. While Apple never lost its optimistic and upbeat tone with the Mac, the product category experienced a few highs but also the lowest of lows.

The best way of describing Apple’s old approach with the Mac (pre-2017) was aggressiveness in getting users to shift to mobile devices. (For this Report, we won’t go over Mac strategy pre-iPhone).

Apple was seeing unprecedented demand for iPhone and iPad with strong installed base growth. Even though Apple was continuing to add new users to the Mac installed base, the rates were not at the same level as what was unfolding with its mobile siblings.

In the early and mid 2010s, a going theory on display with Apple’s product development strategy was that many Mac users would eventually migrate to iPad (and iPhone). These Mac users were not developers and had no need for pro Mac software. Instead, they were sticking with the Mac for other reasons, including familiarity. Based on subsequent Apple disclosure, parts of that theory proved correct. In early 2017, Apple said 70% to 85% of Mac users weren’t relying on professional Mac software. This group was thought to be a prime target market for the iPad.

The implications of this Mac mindset went far. As workflows migrated from the Mac to iPad, the Mac line would be winnowed down to essentially three models: the MacBook, iMac, and Mac Pro. At least, that was the theory. Although this goal wasn’t directly telegraphed in ad campaigns or commercials, Apple’s actions with the Mac spoke volumes. The Mac mini went years without an update. The now infamous butterfly keyboard debacle was ultimately Apple trying to make MacBooks as thin as possible (keys stability was positioned as another selling point). Other new ideas included the Touch Bar and the 12-inch MacBook form factor. The takeaway wasn’t that Apple gave up with the Mac or was losing interest (far from it). Some of the Mac features were clearly inspired by the success seen with Apple's mobile devices. Instead, Apple appeared to be struggling with understanding what users, especially those with pro workflows, were looking for in a Mac.

An Above Avalon membership is required to continue reading this report. Members can read the full report here. An audio version of this report 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: Reports are 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 hosted by MoonClerk and secured by Stripe. Apple Pay and other mobile payment options are accepted. After signup, use this link to update your payment information and membership status at any time.

Special Inside Orchard bundle pricing is available for Above Avalon members. Additional membership customization is available via the Podcast and Financial Models add-ons.

Member Privileges and Benefits

  • Receive Exclusive Daily Updates. The cornerstone of Above Avalon membership is access to Neil Cybart’s exclusive daily updates about Apple. Updates are sent via email and go over current news and developments impacting Apple, its competitors, and the industries Apple plays in (or will play in). Approximately 200 daily updates are published throughout the year. Sample daily updates can be viewed here, here, and here.

  • Receive Exclusive Reports. Members have access to Neil’s reports, which are in-depth examinations of Apple's business, product, and financial strategy.

  • Customization Options. Members have the option of attaching various add-ons to their membership to customize their membership to their liking. Podcast, Inside Orchard, and Financial Models add-ons can be attached and then later removed seamlessly online.

  • Access Neil’s Earnings Model. Members have access to Neil’s working Apple earnings model (an Excel file that also works in Numbers). The model is fully functional and adjustable and provides the ability to alter earnings drivers.

  • Email Priority. Receive priority when it comes to having email questions and inquiries answered. Neil personally answers all inquiries, including customer service matters related to your membership.

  • Archive Access. Read 1,500+ daily updates and reports that have been previously sent to members. The Above Avalon member archive is unmatched in the marketplace in terms of the sheer amount of Apple analysis found in one location. The daily updates archive can be viewed here while the reports archive is available here.

  • Member Forum Access. Join other Above Avalon members in an active forum containing in-depth discussion and debate. Neil moderates and participates in the forum. The forum is run through Slack and can be accessed here.

  • Virtual Meet-ups. Talk with Neil about Apple and other related items in virtual meet-ups held via Slack throughout the year.

  • Above Avalon Support. Play an active role in supporting Above Avalon as an independent source of Apple analysis. Above Avalon is fully sustained by its members.

Inside Apple’s Record Mac Quarter, What’s Going On With iPad Sales?, Charting Apple’s Ecosystem Growth (Daily Update)

In today's update, we will continue our Apple 4Q22 earnings review with a few granular takeaways. In particular, we look beyond the Mac and iPad numbers. Tomorrow, our focus will be geared toward everything that was discussed on management's earnings call.

Inside Apple’s Record Mac Quarter

Apple reported $11.5B of Mac revenue in 4Q22. It was a quarterly record that exceeded my estimate by a significant $1.5B. Prior to 4Q22, the previous Mac revenue record was $10.9B (in 1Q22).

Diving deeper into 4Q22 Mac results, things become more complicated. We may be seeing something equivalent to a near-term plateau, or growth air pocket, for Mac sales.

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.

The daily updates have become widely read and influential in the world of Apple and technology. They are unmatched in the marketplace in terms of comprehensive analysis and research on all things Apple. Members reside in 60 countries and hold a diverse range of backgrounds and occupations. They include Silicon Valley executives and investors, the largest Apple shareholders, and the leading Apple journalists in the business.

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

Above Avalon Year in Review (2021)

Heading into 2021, Apple had just gone through one of the more tumultuous years in its existence. As discussed in last year’s Year in Review, the pandemic turned 2020 into a steady stream of unexpected challenges for Apple. Expectations that 2021 would be much smoother turned out to be optimistic. While society did largely open up halfway through the year, which allowed Apple’s retail apparatus to return to normal operations, Apple continued to face once-in-a-few-decades challenges when it came to the supply chain, product manufacturing, and navigating its 154,000 employees through a pandemic.

According to my estimate, Apple experienced $10 billion of unmet demand in 2021 as a result of supply chain issues. This total is on top of lingering demand issues associated with wearables that arose from the pandemic. 

Despite the challenges, 2021 was a record year for Apple on a number of business fronts:

  • Apple sold 260M+ iPhones - a record high for a 12-month period. 

  • Apple sold 25M Macs - a record high for a 12-month period. 

  • The Apple Watch installed base surpassed 100 million people.

Articles 

In 2021, I published 10 Above Avalon articles. In looking through the articles, which are accessible to all, there was one overarching theme: Apple’s ecosystem continues to gain strength and is ready for the next major product category launch (a mixed reality headset). 

Here are a few of my favorite articles published in 2021 (in no particular order):

Apple Has a Decade-Long Lead in Wearables. AssistiveTouch allows one to control an Apple Watch without actually touching the device. A series of hand and finger gestures can be used to control everything from answering a call to ending a workout. The technology is just the latest example of how Apple’s lead in wearables is still being underestimated. The evidence points to Apple having a wearables lead of not just a few years, but more like a decade.

Apple Won the Share Buyback Debate. I receive many questions about Apple from Above Avalon readers, listeners, and members. In previous years, one topic has been far ahead of any other as a source of questions. Everyone wanted to know about Apple’s share buyback program. Something interesting happened in 2020. I received far fewer questions about Apple’s share buyback program. To be precise, I didn’t receive an incoming question about buyback in nine months - from when the stock market put in a bottom in April 2020 to the start of 2021. What explains such a dramatic change? The Apple share buyback debate ended, and Apple was declared the winner.

Apple’s Extremely Quiet Year for M&A. While going through Apple’s 10-K for FY2021, one number jumped out at me. It wasn’t the record iPhone sales, strong margins, or phenomenal free cash flow. Instead, it was the lack of cash spent on M&A. In 2021, Apple spent just $33 million on business acquisitions (M&A). That’s a record low for Apple with Tim Cook as CEO. It’s a number that deserves further investigation as Apple’s M&A strategy and philosophy play a big role in how Apple was able to get to where it is today.

The five most popular Above Avalon articles in 2021, as measured by page views, were:

  1. Apple Has a Decade-Long Lead in Wearables

  2. Designed by Apple in California, Not Assembled in China

  3. Apple Won the Share Buyback Debate

  4. Apple Watch Is Now Worn on 100 Million Wrists

  5. The Future of Apple Retail

Podcast Episodes

There were 11 episodes of the Above Avalon podcast recorded and published in 2021, totaling 4.5 hours. The podcast episodes that correspond to my favorite articles are found below:

Charts and Exhibits

The following charts and exhibits found in Above Avalon articles published in 2021 were among my favorites.

Apple Wearables Unit Sales (2017 to 2021) - from Apple Has a Decade-Long Lead in Wearables

According to my estimate, Apple is on track to sell 105 million wearable devices in 2021. That total represents 40% of the number of iPhones sold during the same time period. Unit sales don’t tell the full story, however. On a new-user basis, Apple is seeing more people enter the wearables arena than buy a new iPhone for the first time.

Note: Apple wearables include Apple Watch, AirPods, and select Beats headphones.

Percentage of Apple Revenue Through Direct Distribution Channel - from The Future of Apple Retail

The percentage of sales going through Apple’s direct distribution has gradually increased in recent years. The increase in sales percentage has likely been boosted by services revenue, more sales going through Apple’s website, and more iPhone upgrading taking place through Apple.

Note: Direct distribution channel includes Apple’s website, Apple stores, and direct sales force.

Apple M&A (Cash Payments) - from Apple’s Extremely Quiet Year for M&A

Since 2006, Apple has spent $20.6 billion on M&A with about half of the total tied to “business acquisitions.” The median is $1 billion per year. However, in 2021, Apple spent just $33 million on business acquisitions. That is the lowest amount since 2009 when Steve Jobs was still Apple CEO.

Daily Updates

In 2021, I published 182 Above Avalon Daily Updates that were available exclusively to Above Avalon members. With each update coming in at approximately 2,000 words, 182 updates are equivalent to five books. This continues to be an industry-leading number when it comes to the amount of Apple business and strategy analysis published. 

When looking over the topics discussed in this year’s daily updates, a few sub themes become apparent:

Project Titan Moving Forward

Along with mixed reality and AR, transportation is one of the largest areas of opportunity when thinking of future Apple products and services. The year turned out to be the busiest one yet when it came to Project Titan news as Apple began to seek supply chain and manufacturing partners.  

Changes in Paid Video Streaming Land

Given the rush of new players into the paid video streaming space in 2020, there was quite a bit of movement in 2021. AT&T’s decision to spin off WarnerMedia was an industry-shaking event. As the months went on, it became clear that many content distribution services were experiencing something equivalent to a pandemic air pocket as subscriber trends became noisy. Netflix and Roku ran into friction while the true new kid on the block (Apple TV+) regained momentum with new shows and movies coming online in the back half of the year.

The App Store’s Day in U.S. Court

The well-publicized Epic Games vs. Apple trial resulted in a resounding legal victory for Apple. It ended up being difficult to grasp just how poor of a job Epic Games did in trying to paint Apple as a monopoly. While the court did order Apple to change its anti-steering provision in the U.S., Apple won a stay by a court of appeals. The outcome with the highest probability is for the anti-steering provision to remain as is which would signal Apple’s very strong legal footing as it pertains to the App Store.

When looking at my daily updates published in 2021, selecting a few favorites out of 196 updates was not easy. The following updates stood out to me (in no particular order):

  • Warren Buffett’s Annual Letter, Apple Isn’t Buffett’s Token “Tech” Stock, Apple, Buffett, and Buyback. We kick off today’s update with my thoughts on Warren Buffett’s 2020 letter to Berkshire Hathaway shareholders. Berkshire is Apple’s largest individual shareholder. The discussion then turns to why I don’t agree with those claiming Apple is Buffett’s token tech stock. We conclude by looking at share buyback and how the capital return mechanism leads to a wealth transfer event. (Mar 2, 2021)

  • Peloton Recalls All of Its Treadmills, The At-Home Fitness Revolution Needs a Reset, Apple, Fitness Machines, and Gyms. Today’s update will be focused on the at-home fitness industry. It’s a market that Apple moved deeper into a few months ago with Apple Fitness+. A good argument can be made that at-home fitness impacts other Apple devices as well especially Apple Watch and Apple TV. We kick things off with my thoughts on Peloton recalling all of its treadmills. The discussion then turns to why I think the at-home fitness industry needs a reset. The update concludes with how fitness equipment safety, or the lack thereof, impacts Apple and why I continue to think there will be a role for gyms to play in the future. (May 6, 2021)

  • Tesla Buys Bitcoin, Apple and Bitcoin, Apple and Crypto Exchanges. Today’s update will be focused on bitcoin. We begin with news of Tesla buying $1.5B of bitcoin. We then turn to my thoughts on whether or not Apple should follow Tesla into bitcoin. The update concludes with a closer look at RBC Capital Market’s suggestion that Apple should move into cryptocurrency exchanges. We go over why I don’t think the firm’s analysis passes the small test. (Feb 10, 2021)

  • Apple’s Services Journey, A Different Way of Thinking of Apple One, Apple Services Evolution. For the first time in what feels like a long time, the Apple news cycle is taking a breather. This provides us with an opportunity to pursue some original topics. We kick off today’s update with my thoughts on the narrative surrounding Apple’s Services business. Things are starting to change. The discussion then turns to how I think about Apple’s Apple One bundle and how reframing Apple One leads to some interesting questions and ideas as it pertains to the competition. The update concludes with my thoughts on the future factors determining where Apple Services are headed. (Jul 13, 2021)

  • Niantic CEO Pours Cold Water on the Metaverse, Meta Buys Within, The Mistake People Are Making With the Metaverse. We kick things off with my thoughts on Niantic CEO John Hanke’s interview with The Verge’s Nilay Patel on his Decoder podcast. Hanke discussed some of the more intriguing topics and concepts found in the AR/VR/metaverse space. The discussion then turns to Meta (Facebook) buying Within. We go over two items that jumped out at me about the acquisition. The update concludes with the mistake that I see consensus making when it comes to metaverse analysis. (Dec 16, 2021)

  • The Amazon Event, Amazon’s Play for Neighborhoods, Amazon Astro. Today’s update will be focused on Amazon’s product event. We kick things off with my thoughts regarding Amazon’s product strategy involving ambient intelligence. The discussion then turns to Ring’s outsized presence throughout Amazon’s presentation. We go over Amazon’s play for neighborhoods and what is at stake. The update concludes with a closer look at the Amazon Astro. (Sep 29, 2021)

Here are the five most popular daily updates published in 2021 based on page views to AboveAvalon.com. There is naturally a tendency for updates published earlier in the year to outrank more recent updates.

  1. Apple Designer Eugene Whang Left Apple, Apple Industrial Design Turnover, Spotify’s WSJ Op-Ed Against Apple (May 19, 2021)

  2. Peloton Acquires Wearables Company, Peloton vs. Apple Watch, Facebook Talks Up Smartwatch as AR Controller (Mar 23, 2021)

  3. Tesla’s Bitcoin Problem, Apple and Bitcoin Mining, Introducing My FY2022 Estimates for Apple (Feb 11, 2021)

  4. Target to Open Mini Apple Stores, Apple’s Retail Store Growth Strategy, Thursday Q&A (Feb 25, 2021)

  5. Apple Contemplating Apple Watch Explorer Model, Thinking About the Apple Watch Line, Apple Watch Partnerships (Mar 29, 2021)

Just 13% of the daily updates published in 2021 are highlighted in this article. The full archive consisting of all 182 daily updates is available here. Above Avalon membership is required to access the updates.

Daily Podcast

This was the first full year for the Above Avalon Daily podcast, the private podcast available to members who attached the podcast add-on to their membership. A total of 182 episodes were published, totaling nearly 40 hours of audio. The podcast allows members to consume the daily updates in new and different ways while around the house, on a walk, or in the car. Since launch, reception of the daily podcast has exceeded my expectations with very positive listener feedback. More information on the daily podcast, including a few sample episodes, is found here. Once an Above Avalon member signs up for the daily podcast, all prior episodes become available for listening in podcast players that support private podcasts. 

Inside Orchard (Launched in 2021)

In March, I launched InsideOrchard.com as a home to my unique perspective on technology and its impact on society. Over the past nine months, 40 essays and corresponding podcast episodes were published. Although distinct from the analysis and discussion found with Above Avalon, the two sites can be thought of as siblings. A bundle consisting of both an Above Avalon membership and Inside Orchard subscription, with an accompanying price discount, was purchased by a good percentage of the Above Avalon member base.  

Here’s to 2022

A big thank you goes out to readers, listeners, and members for making 2021 another successful year for Above Avalon. Have a safe and relaxing Christmas, holiday season, and New Year. See you in 2022. - Neil

Apple 4Q19 Earnings Expectation Meters

There is increased attention around Apple’s 4Q19 results. Apple shares are up 19% since the company reported 3Q19 results back on July 30th. Since the start of the year, AAPL shares are up 58% while the S&P 500 is up 21%. For a trillion dollar market cap company, such outperformance is noteworthy.

Apple’s strong stock performance has led to questions regarding what management will have to announce on Wednesday to meet or exceed expectations. At the same time, Apple’s 4Q19 results have the potential of containing some noise as Apple works through its flagship iPhone and Apple Watch launch. For example, the iPhone was not in demand / supply equilibrium by quarters end.

The following table contains my overall estimates for Apple’s 4Q19. My expectation is for Apple to report strong 4Q19 results and 1Q20 revenue guidance.

A detailed discussion of these estimates, including the methodology and perspective behind the numbers, is found in my Apple 4Q19 earnings preview available here. Above Avalon membership is required to read my earnings preview.

Each quarter, I publish expectation meters ahead of Apple's earnings release. Expectation meters turn single-point financial estimates into more useful ranges that aid in judging Apple's business performance. In each expectation meter, the white shaded area reflects my official single-point estimate. The gray shaded area represents a result that is considered near my estimate. A result that falls within this gray area signifies that the product or variable being measured is pretty much performing as expected. A result that falls in the green shaded area denotes strong performance and the possibility of me needing to raise my expectations for that particular item going forward. Vice versa, a result falling in the red shaded area denotes the possibility of needing to reduce my expectations going forward.

Over the years, the expectation meters have evolved with Apple’s changing business and financial disclosures. Ahead of Apple’s 4Q19 earnings, I am publishing three expectation meters:

  1. Products vs. Services Revenue

  2. iPhone vs. non-iPhone Revenue

  3. 1Q20 Revenue Guidance

Products vs. Services

Apple breaks out revenue into two categories: products (i.e. hardware) and services. The iPhone likely weighed on Apple’s 4Q19 products revenue due to both declining unit sales and a lower average selling price (ASP). The end result is products revenue that will show little to no growth. Partially offsetting lackluster growth in products, Apple’s Services revenue is expected to grow in the vicinity of 15%. This dynamic will likely improve in FY2020 as both products and services will once again contribute to Apple revenue growth.

iPhone vs. Non-iPhone

Another way of thinking about Apple’s business is to allocate the company’s various products and services into two buckets: iPhone and non-iPhone. Last quarter, Apple’s non-iPhone business registered more revenue than the iPhone business for the first time since 2012. It is unlikely that this dynamic will repeat itself in 4Q19 as the iPhone business gains revenue momentum due to the flagship iPhone launch.

Guidance

Consensus expects Apple to report $86B of revenue in 1Q20. That seems on the light side. My estimate is for Apple to announce 1Q20 revenue guidance in the range of $88B to $91B. Apple has to report more than $88.3B of revenue in 1Q20 to reach a new all-time record for quarterly revenue.

Apple has two tailwinds for issuing strong 1Q20 revenue guidance:

  1. Apple is facing one of the easier year-over-year quarterly compares in years given the demand implosion in China seen in November and December 2018. This will make it that much easier for Apple to report revenue growth in 1Q20.

  2. The environment is conducive to both Apple Watch and AirPods selling well during the 2019 holiday shopping season. Apple not only faces a lack of genuine smartwatch or wireless headphone competition, but also has strong product lines with attractive entry-level pricing available.

On the flip side, one headwind worth monitoring is declining iPhone ASP. Apple cut pricing of its lowest-priced flagship iPhone by $50. In addition, Apple remains aggressive with pricing outside the U.S.

Despite Apple’s strong stock price outperformance so far this year, the company continues to have the lowest forward valuation multiples among the Wall Street giants. A good argument can be made that Apple’s strong stock price outperformance in 2019 hasn’t been driven by expectations of strong 4Q19 numbers or even solid 1Q20 guidance. Instead, the marketplace may be betting on improved visibility around Apple’s financials through FY2021. The environment is becoming more hospitable for iPhone revenue growth to return in FY2020. At the same time, Apple wearables continue to gain momentum. There is then growing smoke around the idea of Apple potentially having a busy first half of CY2020 from a new product perspective.

My working Apple earnings model as well as my granular 4Q19 estimates including unit sales, ASP, and margin expectations, are available here. Above Avalon membership is required to read my full 4,000-word earnings preview. Access to my model is available to members at no additional cost.

My Apple earnings review will be made available exclusively to Above Avalon members. To have the review sent directly to your inbox once published, sign up at the membership page.