Sometimes it’s all about expectations. Apple’s second financial quarter results in 2023 were a bit like a movie with bad word of mouth – but then you see it, and it wasn’t This bad. In fact, maybe it was…good? Kind of?
Or, to put it another way, when the economy looks fragile, it’s awfully nice when one of the world’s most valuable companies is generating $94.8 billion in revenue and a profit of $24.2 billion, even if it is down. slightly of the same quarter a year ago. After ringing a lot of alarm bells three months ago, Apple’s business still looks pretty solid. If this is what a weak quarter looks like, Apple is as blue-chippy as a blue-chip company could get.
As always, amid the numbers and Apple’s traditional phone calls with financial analysts, there are some nuggets to glean about what Apple is doing and what Apple CEO Tim Cook and CFO Luca Maestri think. I’m just here to chew gum and extract nuggets, and I’m out of gum.
A sigh of relief
It was kind of a sigh of relief. Apple’s total revenue was down just 3% from a year ago, making it the second-biggest Q2 in Apple’s history. The iPhone, Apple’s main revenue generator, rose slightly and set all-time highs in Mexico, Indonesia, the Philippines, Saudi Arabia, Turkey and the United Arab Emirates. Apple’s second budget line, Services, also grew slightly and set a new all-time high.
The phone sets sales records in several international markets.
Dominik Tomaszewski / Foundry
The rest of the activity was mixed. While Apple is always trying to come up with superlatives for the Mac, iPad, and wearables product segments, they were few and far between this quarter. It has become clear that the Mac and the iPad are victims of their own recent success, at least in terms of sales trends: both products sold well at the start of the pandemic, and the Mac also experienced a huge increase in sales due to the arrival of Apple silicon. But with those days behind them, both products have to live up to the “tough comparison” in the second quarter of last year, where Apple’s first silicon MacBook Pros and the iPad M1 generated sales than this year’s models simply couldn’t match.
I wouldn’t mind too much, iPad and Mac fans. Both products are selling at levels not seen in the past two years, and there is strong growth in the installed base of both. Apple also said more than half of iPad sales last quarter were to first-time iPad buyers, showing the platform’s growth potential.
Looking at emerging markets, especially India
After Tim Cook’s trip to India last month, there was a lot of talk about India on the analyst call. And the news was good, with Apple setting a quarterly record and posting strong double-digit growth. Cook called it “a major goal” with “incredible” momentum. More importantly, Cook cited the rapid growth of a key customer base for Apple products: “There are a lot of people coming into the middle class” in India, he said, “and I really the feeling that India is at a tipping point, and it’s great to be there.
If that sounds familiar, it’s because Cook said a lot of similar things about China a decade ago. But when asked specifically to compare India’s potential to China’s in the past, Cook hesitated – a politically wise decision. “I think every country is different and has its own journey,” he said. Every country is a snowflake, but huge population snowflakes with rapidly growing middle classes are Apple’s favourites.
Beyond India, however, Apple has been throwing some love at other emerging markets where it’s doing well. “It was an excellent quarter for emerging markets in general, despite the [currency] headwinds,” Cook said. “We are putting effort into a number of these markets and really see, especially given our low market share and dynamic demographics, a great opportunity for us in these markets.” In other words, in many of these markets, Apple’s overall market share and presence is so small that there is almost unlimited room for growth. And Wall Street analysts love to hear about the growth potential.
A bit about AI
Veteran Credit Suisse analyst Shannon Cross asked Cook if he had anything to say on the tech industry’s hot topic, artificial intelligence. And Cook had an interesting, albeit roundabout, response.
“I think it’s very important to be deliberate and thoughtful in how you approach these things,” Cook said. “And there are a number of issues that need to be sorted out, as they are being talked about in a number of different places. But the potential is certainly very interesting. And obviously we’ve made huge strides in embedding AI and machine learning throughout our ecosystem, and we’ve been building it into products and features for many years, as you probably know. You can see it in things like fall detection and collision detection, and ECG. These things are not only great features, but they are also life saving. And so it’s absolutely remarkable. And so we see AI as huge, and we will continue to integrate it into our products in a very thoughtful way.
While Apple is often described as “lagging behind AI” because it doesn’t have its own Siri chatbot in beta, the truth is that the company uses machine learning-based technology in all sorts of corners of its platform, from scanning sensors on the Apple Watch to detecting faces and objects in the Photos app. As for other things – I’m looking at you, Siri – it’s hard to say whether Apple has lost the plot or is keeping everything a secret until the time it rolls a new AI-driven Siri 2.0 on us. all. But “weaving it into our products” isn’t a bad way to describe what Apple has done, so far, with AI.
iStock
horrible on parade
What have we learned? Most of the time things are weird, and we’ve all been through a lot lately, but Apple will be fine. On Thursday, Tim Cook coined a new phrase to describe our weird times: “parade of horribles,” which actually sounds pretty amusing in a Willy Wonka fashion.
But that can’t compare to the “cocktail of headwinds” Apple faced nine months ago. And when Cook introduced the phrase, he did so to emphasize that Apple was fine: “Despite this parade of horribles…we feel good about who we are and what our plans are.”
Sometimes you are one of the horrible; sometimes you’re the guy with the broom at the end of the parade, sweeping up after the ghastly. And all the while, it looks like Apple is watching the parade from its shaded luxury box.
Table of Contents
