Apple's WWDC 2023 Keynote (Granular Observations)
Happy Tuesday.
We will wrap up our analysis and discussion of the WWDC keynote. Yesterday, we went over the larger takeaways from the keynote. In today's update, we will focus on granular items that jumped out at Neil attending and watching the keynote.
Let's jump right in.
Keynote Structure
Layout. This year’s WWDC keynote structure was close to my expectations. Apple had a jam-packed presentation containing software updates across its ecosystem, new Mac hardware, and a “One more thing” for Apple Vision Pro.
Having a digital presentation helped Apple tremendously as the company was able to fit in a lot of information in its preferred two-hour time slot. A live presentation takes up time when considering speakers walking on and off stage, audience applause, and the overall time drain known as onstage demos. (It is interesting how companies like Google have gone back to live presentations for keynotes. That ship has sailed for Apple.)
Target Audience. The WWDC keynote is aimed at developers since it kicks off Apple’s multi-day developers conference. The opening video and Cook’s monologue in the beginning set the stage. This doesn’t mean that the keynote is structured just for developers' interest - that's what the Platforms State of the Union presentation is for. Instead, the WWDC keynote is aimed at informing those in the Apple ecosystem of what to expect in the next year (from a software development perspective).
Priorities. This year’s WWDC keynote was 126 minutes long, roughly 20 minutes longer than prior virtual WWDC keynotes.
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The Lack of “AI” at WWDC, Revisiting Apple’s Identity Network, iPhone StandBy, Mac HW Updates
Hello everyone. Welcome to a new week.
We will focus on the major takeaways from Apple’s WWDC keynote (not including Vision Pro which we discussed last week).
Let’s jump in.
The Lack of “AI” at WWDC
In what doesn’t come as a surprise, Apple didn’t mention “AI” once during the WWDC keynote. According to CNET, Google said “AI” 143 times during its I/O keynote. That's a little more than one AI mention per minute. In addition to "AI," Google said “Bard” 42 times, “PaLM” 35 times, and “Generative” 30 times.
The lack of AI mentions in the WWDC keynote was intentional on Apple’s part. Every slide shown at an Apple event is there for a reason. Words, images, and videos are debated, chosen, and reviewed.
There are two primary reasons for the lack of “AI” in Apple’s keynotes:
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The Challenge Selling Vision Pro, Vision Pro Competition, Vision Pro Q&A
Hello everyone. We kick things off with a big challenge Apple will face selling Apple Vision Pro. The discussion then turns to Vision Pro competition and the degree to which Neil thinks Apple’s headset will impact the AR/VR/mixed reality industries. We conclude with Neil answering 11 questions from members about his 30-minute Vision Pro demo.
Let’s jump in.
The Challenge Selling Vision Pro
One takeaway from my 30-minutes with Vision Pro was that Apple will have an easier time selling the headset if consumers can experience a demo. The presentation that Apple showed during the WWDC keynote – the company also released a 9-minute video overview - didn’t come close to conveying what it’s like using the device. Trying to explain spatial computing in 2D terms has been a problem for years.
Apple can’t demo Vision Pro on stage. This is not like an iPhone, iPad, or even Apple Watch. That is a challenge for Apple.
Since Apple needed to come up with some type of marketing for the device, the company landed on relatable scenarios and use cases that they think people can see themselves in or doing.
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The “Why” Behind Apple Vision Pro, Apple Revolutionizes Memories, Vision Pro Pricing Strategy
Hello everyone. There is a slight change of plans. Yesterday’s update led to the largest number of incoming emails from members following an update in years. Accordingly, we are going to keep running with the Vision Pro discussion. Neil spent about 30 minutes using Apple Vision Pro. The technology powering the device is the future. We will get to the rest of Apple’s WWDC announcements.
A few quick items:
A virtual member meetup took place this past Monday in the Above Avalon team in Slack. The value found with having it take place in Slack is that people can still add to the discussions that took place. If you haven't checked the meetup out, look in the #random channel. The start of the meetup is pinned / shaded in a yellow hue.
Vision Pro sound quality. Yesterday’s discussion didn’t include any mention of Neil’s audio experience using Vision Pro. The headset includes a pair of speakers, positioned in the head strap and angled towards the wearer’s ears. The sound quality was very good. Just as important, there was no issue hearing other people in the room while something was playing via the headset. It’s not known what someone seated next to an Apple Vision Pro wearer can hear though.
Q&A. Have questions about Apple Vision Pro? Send them Neil’s way and they can be addressed tomorrow. There has already been a decent number of questions posted in the member forum (they will be covered).
The “Why” Behind Apple Vision Pro
It’s a positive sign for Apple that those who were among the first to try out Vision Pro have landed on different things as their “favorite” experience. Some people say the mindfulness app was what opened their eyes (the word trippy came to mind with that app). Others say the live sports consumption implications jumped out at them. There isn’t one right or wrong answer. Depending on the wearers’ personality, likes, interests, and perspective, different things will jump out at them. The era in which one thing is a “killer app” for everyone ended years ago.
There are still important questions left unanswered: Why sell Vision Pro? What is the device’s purpose?
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My Thoughts After Using Apple Vision Pro
With this year’s WWDC review, we are going to do something different. Today’s update will focus on the big news: Apple Vision Pro. In particular, we will go over Neil’s time using Apple’s first headset. Neil spent about 30 minutes using Apple Vision Pro. The technology powering the device is the future.
Everything else that Apple announced yesterday was important as it pertains to today’s ecosystem. We will talk about those updates on Thursday using a traditional big picture takeaways framework. There will be a follow-up tomorrow to today’s headset discussion as Neil’s notes were too long to fit in one update. In particular, we will talk about the “why” behind Vision Pro.
Let’s jump right in.
My Thoughts After Using Apple Vision Pro
With Apple Vision Pro, Apple has something big on its hands, and they know it. This is not a developer kit. It’s not an enterprise-only device. Apple Vision Pro is a new-age, wearable computer for consumers. We have not seen anything like it before. After using Apple Vision Pro for just a few minutes, it became clear this where the future is found. You don’t want to stop using the device. Apple Vision Pro makes the iPhone, iPad, Mac, and even Apple Watch feel like dated technology.
The question isn’t what people will use this technology for, but rather what won’t be handled by this in the future.
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Google I/O 2023
Hello everyone. Welcome to June.
Virtual Member Meetup on Monday. Following the WWDC keynote, there will be a virtual member meetup in the member forum in Slack on Monday at 5:30 pm ET / 2:30 pm PT. Hopefully that time will also allow some members in Europe to join. This meet-up will provide an opportunity for members to have conversations in real-time about everything that was announced. In addition to participating in the discussion myself, I moderate the discussion topics etc. The discussions are then made available afterwards for other members to read through in Slack.
Above Avalon Report. With Apple widely expected to unveil its first headset on Monday, my expectations for the device are found in the Above Avalon Report "Apple's Reality (Headset) Plans" published back on April 12th. You can read the report here. An audio version of the report is also available via the Above Avalon Reports podcast (part of the podcast add-on).
Today’s update will be focused on the Google I/O 2023 keynote. In addition to covering Neil’s thoughts on the keynote, the discussion goes over the weakest/strongest points of the presentation as well as the oddest parts. Given the discussion’s length, Spotify earnings was pushed off. We will circle back to Spotify post-WWDC.
Let’s jump right in.
Google I/O 2023
Google held its developer conference in mid-May. Like Apple’s WWDC keynote, Google’s I/O keynote (available here for viewing via YouTube) is geared toward consumers, developers, and the press. The company then held more developer-focused presentations afterwards.
While Google unveiled AI-driven features in prior years, the difference found with this year’s Google I/O keynote is that it took place in the shadows of ChatGPT and Microsoft's AI push. One got the sense that Google felt insecure about the AI attention being given to others. It was hard to ignore the “we are actually the AI leader” tone emulating throughout the presentation. The thing is, very little that was shown on stage struck me as “only Google.” AI will be adopted by all of Big Tech – it already has been.
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Sonos Earnings, Sonos Unveils Sonos Pro, Peloton Earnings
Hello everyone. Two quick follow-ups to yesterday’s update:
The “ESPN in 100M households at its peak” vs. "Netflix’s 74M paying subscribers in the U.S. and Canada" is not a simple comparison. Not only is password sharing rampant with Netflix - making it likely that Netflix is found in more than 74M U.S. households – but it’s also very simple to signup/cancel a Netflix subscription. ESPN was, and still is, only available as part of a $$ bundle.
A few people reached out to me to say that they have never had a woven/fabric Apple Watch band tear or split despite years of usage. Such wear and tear for a band specifically marketed as rugged seems odd. I agree with that statement. At least based on my experience, Alpine Loop was far too delicate to be part of the Apple Watch Ultra series. That doesn't mean Apple should move away from comfortable materials for Ultra bands. Instead, they should introduce more rugged bands that begin to provide additional utility to the wearer.
In today’s update, we begin to wrap up our CY1Q23 earnings reviews with smaller companies that remain intriguing to keep an eye on from an industry/competition standpoint: Sonos and Peloton. We will cover Spotify tomorrow.
Sonos Earnings
Sonos was not able to escape the consumer gadget recession. CY1Q23 revenue was down 24% to $304M (vs. $400M last year) as fewer people bought premium speakers in the home. The closest equivalent to unit sales was down by about 30% While Sonos fell victim to a tough year-over-year compare, similar to what Apple experienced in a few product verticals, sell-through demand was also weaker.
Here is Sonos speaker sales on a TTM basis to remove the seasonality associated with the holidays:
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The Case for More Durable Apple Watch Ultra Bands, Disney Planning Standalone ESPN Offering
Hello everyone. The daily updates return with a post-Memorial Day update focused on some of Neil's thoughts about Apple Watch bands. We then turn to news on the Disney streaming front.
The Case for More Durable Apple Watch Ultra Bands
Apple is no stranger to selling higher-priced Apple Watch bands. Over the years, Apple has sold more than 620 bands, ranging from the entry-level $49 Sport Band and Solo Loop to the $99 Milanese Loop and $339+ Link Bracelet.
Throughout Apple Watch’s history, higher-priced Apple Watch brands have been associated with luxury and fashion, not additional utility. For the Apple Watch launch in 2015, Apple sold exclusive Link Bracelets for Apple Watch Edition. The Hermès partnership, now in its eighth year and centered around the company’s leather expertise, includes high-priced bands with the top one currently going for $849.
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More Signs of U.S. Consumers Turning Cautious, Apple Signs Multi-Year Deal With Broadcom, Peloton’s Rebranding and New Membership Tiers
Hello everyone. We kick things off with the fourth largest U.S. retailer sounding the alarms about the U.S. consumer. The update goes over how U.S. consumers becoming more cautious stands to impact Apple. The discussion then turns to Apple signing a new multi-year deal with Broadcom. We conclude with Peloton’s rebranding and new membership tiers. It’s extremely hard for Peloton to come in below Neil’s expectations these days. The company’s new membership tiers do just that.
Let’s jump into today’s update.
More Signs of U.S. Consumers Turning Cautious
On Apple’s most recent earnings call, management alluded to seeing some weakening in iPhone demand in the U.S. This would manifest itself through Apple’s financials via fewer unit sales as upgrade rates slow. In what would only be a partial offset to lower unit sales, iPhone ASP may actually benefit from the development as the phones that Apple does sell tend to be higher end.
There were a few incoming comments from members that sowed some doubt that Cook was telling the full story. How can U.S. consumers be balking on iPhone purchases when the jobs picture is so strong?
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Alphabet Earnings, Pichai Comments on Google's Mobile Search Deals, Microsoft Earnings
Hello everyone. We wrap up Big Tech earnings reviews with Alphabet and Microsoft. There are a handful of earnings from smaller companies worth going over – we will do that at some point next week. We kick off today’s update with Neil’s thoughts on Alphabet’s 1Q23 earnings. The update goes over Sundar Pichai’s comments on Google’s various services partnerships with Android OEMs as well as Apple for mobile search. We conclude with a look at the main takeaways from Microsoft’s FY3Q23 earnings.
Let’s jump right in.
Alphabet Earnings
Alphabet reported 1Q23 earnings back on April 25th. From a financial perspective, results were good. In a quarter that won’t be remembered for any particular financial line item, Alphabet reported $17B of free cash flow. That is testament to Google’s ad machine kicking off an incredible amount of cash quarter in and quarter out. The company possesses some of, if not the most, valuable pieces of digital real estate. As seen with a growing list of much smaller companies, most other ad-funded digital paths are nowhere near as attractive as Google’s.
Here are Alphabet’s major financial line items compared to those of Apple, Meta, and Amazon:
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Meta Looking at Magic Leap as AR Supplier, Meta’s AR/VR Positioning, Apple Reality Headset BOM
Hello everyone. Welcome to a new week.
The news flow related to AR/VR headsets is picking up. Apple is widely expected to unveil its entry into the space in just two weeks at WWDC. My assumption continues to be that Apple’s headset will be unveiled as a “one more thing” at the end of an already-packed WWDC presentation (pre-recorded). The unveiling will likely kick off a wave of stories, tidbits, and related topics in the subsequent months. In today’s update, we kick things off with Neil’s thoughts on Meta reportedly looking to partner with Magic Leap for AR IP and contract manufacturing. The discussion then turns to Meta’s positioning in AR/VR with Apple about to enter the space. We conclude with chatter regarding the bill of materials (BOM) for Apple’s Reality headset.
Let’s jump into today’s update.
Meta Looking at Magic Leap as AR Supplier
Over at the Financial Times, here are Hannah Murphy and Patrick McGee:
“Facebook’s parent company is in talks to create a multiyear agreement with augmented reality start-up Magic Leap, as the social media giant continues to pour billions of dollars into its ambition to create an avatar-filled online world called the metaverse.
According to people familiar with early discussions, Meta is exploring ways in which Magic Leap could provide both intellectual property licensing and contract manufacturing in North America to help it build mainstream AR products.
Magic Leap produces custom components, including high-tech lenses and associated software, which are key technologies that may be required to build a metaverse. However, people with knowledge of the talks said the partnership is not expected to yield a specific joint Meta-Magic Leap headset
Two former employees said Magic Leap’s ‘biggest asset’ is the sophistication of its ‘waveguides’ — technology that allows thin glass in front of the user’s eyes to conjure up realistic images at different depths.”
Interesting timing for this news to come out just two weeks ahead of Apple’s headset unveiling. Up to now, Meta has garnered quite a bit of mindshare in the AR/VR space. That is going to change once Apple officially moves into the space. Since we are likely looking at a multi-month window between product unveiling and release, Meta would be right to be concerned about Apple freezing large swaths of the AR/VR market.
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The WSJ’s Report About Apple’s Headset, What’s Behind Apple Headset Skepticism?
Hello everyone. With WWDC kicking off in less than three weeks, today's update will go over some of the hoopla surrounding Apple's upcoming mixed reality headset. We begin with Neil’s thoughts on the WSJ’s recent report about the Apple headset. The discussion then turns to the skepticism surrounding the device and what may be driving such feelings. Let's jump right in.
The WSJ’s Report About Apple’s Headset
In an article headlined "Apple Is Breaking Its Own Rules With a New Headset," here are the WSJ's Aaron Tilley and Yang Jie:
“Apple in the coming weeks is expected to unveil what is perhaps the most experimental, unconventional product in its history: a so-called mixed-reality headset that resembles a pair of ski goggles and comes with a battery pack, people familiar with the matter say.
Apple’s launch plans break many of its traditions and rules about new products that have become the industry gold standard. Unlike other Apple products, the device is debuting in a still-experimental mode. Apple predicts slower adoption for the headset compared with the Apple Watch or the iPhone, both of which quickly became consumer must-haves. Taking seven years in development before hitting the market, it will be one of the most complex consumer products any company has ever sold.
The Apple headset will combine both augmented and virtual reality into a single device—a term the industry calls mixed reality. Users wearing the headset, for instance game players, will be able to experience their virtual worlds through the screen in the goggles, but also be able to simultaneously see the physical world around them thanks to outward facing cameras, said people familiar with the project.
Company engineers and executives have spent months preparing presentations with a demo version of the device for Apple’s upcoming annual software conference in June. But it isn’t expected to be delivered for most users until the fall at the earliest, people familiar with the supply chain said. Some Apple employees and suppliers have questioned whether the rollout could be delayed given the challenges with integrating the headset with new software, its production and the broader market, people familiar with the product’s development said. Apple could still make changes to its timeline.”
If there were still questions as to whether or not a headset reveal at WWDC was a go, this article should settle any remaining doubts. However, instead of publishing that one item across a few paragraphs, the WSJ decided to turn it into something of an exposé on how the upcoming headset somehow required Apple to break its own rules.
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YouTube Gaining TV Momentum, Value of Ad-Supported Tiers in Paid Video Streaming, Apple TV+ and Ads
Hello everyone. There were a few follow-ups to yesterday's discussion regarding paid video streaming. We will look at how paid streaming is performing relative to the elephant in the room: YouTube. We will then turn our attention to the momentum found with ad-supported tiers. A question that is being asked more frequently is if Apple will bring advertising to Apple TV and Apple TV+. The update covers Neil’s thoughts on the topic.
Let's jump right in.
YouTube Gaining TV Momentum
“YouTube, already the most popular streamer on big-screen TVs, last month built on its lead as one of the only major services to see viewing time among U.S. TV households increase, according to new Nielsen data.
For the period from March 27-April 30, 2023, TV viewing of YouTube videos (excluding YouTube TV) was up 1.5%. That translated into an increase of 0.3 share points, with YouTube ending the month with 8.1% of total time spent watching television, according to Nielsen measurements.
Time spent viewing on most other streaming platforms, including Netflix, Disney+, HBO Max, Prime Video, Peacock and Hulu, was flat or down compared with March 2023, according to Nielsen’s The Gauge report for April. Along with YouTube, two free, ad-supported TV (FAST) services had month-over-month gains: Fox’s Tubi was up 6% from March, adding 0.1 share point to capture 1.1% of overall TV viewing, and Paramount’s Pluto TV viewing increased 3.9% for the month to hold at 0.8% share.”
Given potential seasonal effects on those numbers as we move from March to April, it makes sense to compare April 2023 figures to April 2022 data (via Nielsen).
April 2022 (share of TV time)
Cable: 36.8%
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Disney Earnings, Disney to Combine Disney+ and Hulu, Hulu’s Future
Hello everyone. Happy Tuesday. Today's discussion will take us into paid video streaming land. Last week, Disney reported CY1Q23 earnings. We go over Neil’s thoughts on the earnings release. The update then turns to Bob Iger’s plan to combine Disney+ with Hulu in a new streaming app. We conclude with a look at Hulu’s future as it pertains to Disney and Comcast.
Let's jump right in.
Disney Earnings
Disney’s FY2Q23 earnings were good. Overall revenue was up 13% while free cash flow was just shy of $2B. Over the past year, there hasn’t been a shortage of mediocre to poor quarters in the tech and media space. However, Disney’s CY1Q23 results reflect the benefits found with a truly diversified business model in the media space (IP that can be monetized in various ways). Disney Parks and Experiences remains on a tear with ~20% revenue growth and strong operating income. Excluding timing issues with higher sports programming costs, even Disney’s Linear Networks results were OK, helping to offset continued financial losses found with Disney+. Management claims streaming losses peaked last year.
Here are Disney’s DTC subscription totals (as of April 1st, 2023):
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Amazon Earnings, Amazon’s Growth Initiatives, Amazon Bets on Return to Office
Hello everyone.
Welcome to a new week.
To recap where things stand in what has been a whirlwind of a month, last week we concluded our Apple 2Q23 earnings review. There were four updates dedicated to earnings:
Apple 2Q23: By the Numbers, Apple Device Upgrading Slows, Apple's Emerging Markets Strength
Reading Between the Lines of Apple's 2Q23 Earnings Q&A With Analysts
Apple 2Q23 10-Q Takeaways, Apple's Share Buyback Update, More on Apple's Stingy Dividend Increases
Apple's Paid Subscriptions Growth Reaccelerates, The Case for Higher Apple Gross Margins
Starting with today’s update, we will pick up where we left off by examining CY1Q23 earnings from Apple’s peers and competitors. In addition, developer conference season has kicked off with Google I/O last week.
The update begins with Neil’s thoughts on Amazon’s earnings. The discussion then turns to Amazon CEO Andy Jassy’s 2022 shareholder letter. We conclude with Amazon’s renewed pitch for having its corporate employees spend more time in the office instead of work from home.
Over the weekend, Above Avalon Membership entered its eighth year. The first members joined on May 13th, 2015. Over the years, approximately 1,500 daily updates have been published. A big thank you to all of you for the continued support. Above Avalon remains 100% supported by memberships.
Let’s jump into today’s update.
Amazon Earnings
The big theme from Amazon’s CY1Q23 earnings was optimization. The company continues to work through an overinvestment cycle in which management thought pandemic-driven demand would continue seemingly unabated. Instead, Amazon ended up front-running demand by ramping up capex and investment spending. Management claims to have made some progress in working through the overinvestment, including substantial reconfigurations of its U.S. fulfillment network. Wall Street remains concerned (and somewhat confused) with what normalized profit margins will look like for Amazon.
From a product perspective, the Amazon story continues to be found with
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Apple’s Paid Subscriptions Growth Reaccelerates, The Case for Higher Apple Gross Margins
Hello everyone.
We will conclude our Apple earnings review by looking at Apple’s paid subscriptions growth and gross margins. There are a few follow-ups that we have not covered yet. The discussion includes Neil’s thoughts on why Apple’s gross margins still have room to move higher.
Let’s jump right in.
Apple’s Paid Subscriptions Growth Reaccelerates
In keeping with its usual disclosure, Apple provided updated comments regarding the number of paid subscriptions across the Apple ecosystem.
Based on Apple’s commentary, here are my estimates for the number of paid subscriptions across Apple’s ecosystem (first party and third party) on a quarterly basis:
1Q20: 482M paid subscriptions
2Q20: 518M
3Q20: 553M
4Q20: 588M
1Q21: 623M
2Q21: 663M
3Q21: 705M
4Q21: 749M
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Apple 2Q23 10-Q Takeaways, Apple's Share Buyback Update, More on Apple’s Stingy Dividend Increases
Happy Tuesday.
In today’s update, we will go over Apple’s 2Q23 10-Q. We will then discuss Apple’s buyback and cash dividend programs.
Let’s jump right in.
Apple 2Q23 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 2Q23 10-Q jumped out at me.
Product Details. Apple provided additional commentary behind sales trends for its major product categories.
iPhone. Net sales were flat in 2Q23. Based on that wording, it sounds like higher ASP was not a major factor in iPhone revenue growth. In the past, Apple has called out a different mix of iPhone models to hint at ASP changes. For reference, the last time Apple called out iPhone mix in the 10-Q, ASP likely was up 10%+ year-over-year. For 2Q23, we are looking at a much smaller increase in ASP given FX headwinds.
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Reading Between the Lines of Apple’s 2Q23 Earnings Q&A With Analysts (Daily Update)
Hello everyone. Welcome to a new week.
Last Friday, we went over the numbers from Apple’s 2Q23 earnings release. We also looked at two of the major themes from earnings: the impact from less device upgrading and Apple’s emerging markets strength.
In today’s update, we will focus on Apple’s earnings Q&A session with analysts. After recapping each question-and-answer exchange that occurred on the call between Apple and sell-side analysts, we will go over my thoughts / response to the exchange. Let’s go beyond what was talked about on the call.
NOTE: The following earnings call questions (“Q (Sell-Side Firm)”) and answers (“Cook” or “Luca”) have been cut, summarized, paraphrased, and rearranged for clarity. To read the full question and answer exchanges, MarkerBeat offers a written transcript here.
iPhone
Q (Morgan Stanley): Did Apple experience iPhone demand deferral or destruction arising from the COVID shutdowns in late 2022?
Cook: Our 2Q23 results reflected some iPhone demand carryover from 1Q23. iPhone production is back where we want it to be.
My response: Recall our discussion heading into earnings about two variables driving iPhone sales in 2Q23: Underlying customer demand and a sales carryover from 1Q23 related to COVID shutdowns. Cook’s answer implies that
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Apple 2Q23: By the Numbers, Apple Device Upgrading Slows, Apple's Emerging Markets Strength (Daily Update)
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.
Hello everyone. Welcome to a special edition Friday version of the daily update. We will begin going over Apple’s 2Q23 numbers and conference call.
For today, the focus will be on the key numbers and two big picture takeaways. The discussion will continue next week.
Let’s jump right in.
Apple 2Q23: By the Numbers
There were no major surprises found with Apple’s 2Q23 earnings. Device upgrading has slowed, although Apple continues to bring new users into the fold. While the iPhone, iPad, and Apple Watch look OK, AirPods continues to experience growth turbulence, while the Mac is trying to find sales stabilization. In an environment where gross margin integrity is being rewarded, Apple’s results will get attention.
Apple’s guidance for 3Q23 is close to what sell-side analysts were expecting, which likely will come as a disappointment to some. Looking under the hood, it looks like the U.S. macro environment is indeed sluggish, backing up conclusions from various Fortune 500 firms. Offsetting such disappointment, Apple continues to see strong momentum in emerging markets as the company takes share from Android.
Here are Apple’s reported 2Q23 results versus my expectations with brief commentary for each item.
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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%
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