Deciphering the Q4 2018 Apple Earnings Call

Image from Unsplash by @jingdachen

Image from Unsplash by @jingdachen

OK, so Apple set new September quarter records again. Services revenue reached its highest level ever. There are some things in between the lines of the press release and associated statements that might not appear as rosy as the comments from Apple CEO Tim Cook and CFO Luca Maestri. In this post, I’m taking a closer look at the revenue and sales figures reported.

For one, the fiscal 2019 first quarter (including the holiday sales season) guidance sounds a bit weak. This is similar to what Amazon forecast for the upcoming quarter, so it might just reflect an overall decline of consumer enthusiasm for spending a lot of money. It also appears that foreign exchange “headwinds” might be causing a drop, but that usually doesn’t affect revenues that much.

One very amazing statistic is that Apple has sold a total of 1.5 billion iPhones since 2007. However, no one year of sales has matched 2015, which saw a total of 231.22 million iPhones sold — 2018 only saw 217.72 million. Perhaps 2019 will be the next “big wave” for iPhone sales as people decide to replace older models with the iPhone XS and iPhone XR.

iPhone revenues climbed 29 percent in 2018, but unit sales were essentially stalled for the year. What does that indicate? That the higher average selling price of the new, more expensive iPhones is definitely contributing to Apple’s bottom line even as fewer consumers are able to afford them.

One number I found troubling was the continuing weakness in iPad sales, with unit sales down 6 percent year over year compared to 2017, and a drop of 15 percent in revenues. Although I don’t have my eyes on exact sales figures for iPad Pro versus iPad, this seems to indicate that the new, less expensive basic iPad is selling more — and contributing less to the bottom line — than the more expensive iPad Pro. Hopefully the announcement of new, more powerful iPad Pro models this week will turn the trend on iPad revenues.

Mac sales were down 2 percent year over year, which is essentially flat. Revenues did climb slightly — 3 percent — in 2018, which tells me that more expensive Mac models (in particular the MacBook Pro) are selling well. I’d feel confident that the new Macs announced this week will help out in Mac revenues in 2019, although the iMac needs a drastic redesign and the Mac Pro finally needs to ship.

The really bright spot in the revenue picture in this report — other than the killer revenues from iPhones — was in the “Other Products” area. This is where AirPods, Apple Watch, Beats, HomePod, iPod touch, and accessories are slotted in. I can believe that this is an area that will remain strong, as I see AirPods and Apple Watches everywhere these days.

Tim Cook noted just how strong Apple Pay is, and since Apple gets a small cut of each sale made with the touchless payment system, that could very well explain why services revenues were up 17 percent year over year. One other bright spot could be (and we don’t know this for sure) Apple Music.

The increase in revenue year over year in all global market segments is just plain spectacular: 19 percent in the Americas, 18 percent in Europe, 16 percent in Greater China, 34 percent in Japan, and 22 percent in the rest of Asia Pacific.