MacDailyNews presents live notes from Apple’s Q119 Conference Call with analysts

MacDailyNews ^ | January 29, 2019

[Swordmaker]

Starting at 5pm ET/2pm PT today.

Apple will provide live audio streaming of its Q119 Results Conference Call using Apple’s industry-leading QuickTime multimedia software.

The live webcast will begin at 2pm PT/ 5pm ET today here.

The company posted quarterly revenue of $84.3 billion, a decline of 5% from the year-ago quarter, and quarterly earnings per diluted share of $4.18, up 7.5%. International sales accounted for 62% of the quarter’s revenue.

For Q119, Apple guided for revenue revenue between $55 billion and $59 billion. Live notes from Apple’s Q119 Conference Call in reverse chronological order:

AAPL after hours: $163.15, +$8.47 (+5.48%) @ 6:03PM EST
•  End of call.
•  When Apple sells a product, they estimate value of free services (Maps, Siri) and that value has been reclassified under Services; cost to provide is also included in Services
• Cook: We will participate in original content market; we’ll have something more to say about that in the future
• Apple will participate in that via Apple TV, AirPlay 2, and via third-party video apps on Apple’s App Stores
• We see huge changes in customer behavior and expect it to accelerate this year due to the breakdown of the cable bundle
•  Apple’s services business is a broad portfolio
• Service gross margins increased sequentially by 170 basis points. Business is growing nicely
• iPhone upgrades for Q119 were less than Apple expected to to currency headwinds, lack of subsidies
• iPhone upgrade cycle has extended, there’s no doubt about that  
• Cook: We design our products to last as long as possible  
• Apple expects to grow revenue nice from the rest of their business  
• Strong U.S. dollar, subsidies, etc. will affect iPhone is Q219 as well
• Apple’s iPhone channel inventory typically increases in Q1 and decreases in Q2 and that will be the case this year, too
• iPhone XR is most popular, followed by iPhone XS Max, and then iPhone XS
• Q119 faced a difficult compare vs Q118 due to release dates of new iPhones
• Cook on iPhone price elasticity: In the U.S. there was actually a very small difference on iPhone pricing, but foreign exchange affected prices, due to strong U.S. dollar, especially in emerging markets. Price is a factor. Subsidy is a bigger issue in developed markets. If you’re a customer who’s last purchase was an iPhone 6, 6S, or even a 7, the full unsubsidized price may delay purchase
• Apple is optimistic for their future and their share repurchase program reflects that
• Roughly 30% of Apple’s services business is outside of the U.S. and subject to currency headwinds
• Maestri: Apple wants to double size of services from 2016 to 2020 and Apple is on track to do so. Apple’s installed base is growing very nicely and not dependent on what Apple’s sold in the last 90-day period. Subscriptions are becoming a very large portion of Apple’s business (to surpass 500 million subscribers in 2020). This is an “incredible, staggering number.” We are also looking to launch new services in the future and are very excited about what’s coming
• Apple is providing the following guidance for its fiscal 2019 second quarter:
  • revenue between $55 billion and $59 billion
  • gross margin between 37 percent and 38 percent
  • operating expenses between $8.5 billion and $8.6 billion
  • other income/(expense) of $300 million
  • tax rate of approximately 17 percent
• Apple continues to face currency headwinds due to strong U.S. dollar
•  AAPL after hours: $164.13, +$9.38, (+6.06%) @ 5:36PM EST
• For example, new iOS apps for enterprise are identifying construction errors
•  iOS is taking the enterprise by storm
• Apple’s wearables business is approaching the size of a Fortune 200 company (YKBAWID)
• Wearables, home and accessories grew over $1.8 billion, thanks to amazing popularity of Apple Watch and AirPods
• Half of iPad buyers in Q119 were new to iPad
• Installed base of iPad reached a new all-time high
• Half of Mac buyers in Q119 were new to Mac
• Strong response to new MacBook Air and Mac mini
•  9% increase in Mac revenue YOY
• Apple expects paid subscriptions will cross 500 million mark in 2020
• The dividend is payable on February 14, 2019 to shareholders of record as of the close of business on February 11, 2019
• Apple’s board of directors has declared a cash dividend of $0.73 per share of the Company’s common stock
•  Very strong operating cash flow of $26.7 billion
•  Best quarter ever for Services (pounding analysts over the head until they get it)
•  U.S. iPhone customer sat: 99% for iPhone XR, XS, and XS Max
• Segment revenue:
  • iPhone: $51.982B vs. $61.104B YOY
  • Mac: $7.416B vs. $6.824B YOY
  • iPad: $6.729B vs. $5.755B YOY
  • Wearables, Home and Accessories: $7.308 vs. $5.481 YOY
  • Services: $10.875B vs. $9.129B YOY
•  Total net sales: $84.310B vs. $88.293B YOY
• Best quarter ever for Mac
• 62.9% gross margin for services
• 34.3% gross margin for products
• Luca Maestri: New all-time revenue records in U.S., Canada, South Korea, and elsewhere
• Apple has “exciting announcements coming later this year”
• Apple working on rolling out payment programs for iPhones to more geographies
• iPhone trade-ins are great for the customer and for the environment and for growing Apple’s active installed base
•  Cook: Innovation and privacy can go hand-in-hand (no mention of Group FaceTime debacle)
• Apple has just begun to scratch the surface of health
• Apple Watch has dramatically changed and even saved many users’ lives
• Best quarter ever for wearables including Apple Watch and AirPods
• iPad revenue up 17%, highest growth rate in nearly 6 years
• Mac revenue up 9% in Q119. Best Mac quarterly revenue ever
•  Apple services: Over $41 billion in calendar 2018
• Apple is very happy with the growth and breadth
• ComScore: Apple News has the largest audience of all News apps
• Apple News readership set a new record with 85 million active readers
• Apple Pay in Germany had more transactions at Deutsche Bank in one week than Android transactions for the entire year
• Apple Pay had over 1.8 billion transactions in Q119, well over 2X YOY
•  Apple generated highest quarterly music revenue ever, now with over 50 million paid subscribers
•  Installed base was 1.3 billion as of Jan 2018 and has grown to 1.4 billion by end of December 2018
•  iPhone decline: Apple’s $29 battery replacement program which impacted new iPhone sales
• iPhone decline: iPhone subsidies are becoming increasingly less common
• iPhone decline: Strength of U.S. dollar has made Apple products more expensive in other parts of the world
•  Outside of iPhone, Apple’s business grew 19% YOY
• iPhone replacement cycle is lengthening
•  AAPL after hours: $162.58, +$7.90, (+5.11%) @ 5:13PM EST
•  iPhone XR, XS, and XS Max are, by far, the best iPhones Apple has ever shipped
•  Revenue from China grew slightly for the full calendar year
• Record services revenue were generated in China in the quarter
• Apple believes China business has a bright future
• Greater China was significantly down YOY
•  Apple posted quarterly revenue of $84.3 billion, a decline of 5 percent from the year-ago quarter, and quarterly earnings per diluted share of $4.18, up 7.5 percent.
• Conference call begins 8 minutes late (maybe they were planning on using Group FaceTime)

• AAPL after hours: $160.74, +$6.00, (+3.88%) @ 5:07PM EST

• Cook usually delivers conference calls on-time, at least

• Conference call is getting an uncharacteristically late start today…  AAPL after hours: $160.20, +$5.57, (+3.60%) @ 5:02PM EST
• Apple’s overall gross margin was 38% for the quarter
• As per CNBC, Analysts at KeyBanc Capital Markets had predicted a 59% services gross margin for the quarter in a note distributed to clients last week
• Apple’s Q119 services unit had a massive 62.8% gross margin
•  Apple Inc. now has $245 billion cash on hand, 3% more than last quarter’s reported $237.1 billion

• AAPL after hours: $161.20, +$5.83, (+3.77%) @ 4:53PM EST • AAPL after hours: $160.26, +$5.83, (+3.77%) @ 4:47PM EST • AAPL after hours: $159.21, +$4.65, (+3.01%) @ 4:40PM EST3

[Swordmaker]

Apple First Quarter Financial Conference Call notes in reverse order. Beats all except iPhone revenues. . . Profits beat year-over-year by 50% on lower revenues!—PING!

Apple Financial Call for 2019 First Quarter Ping!

If you want on or off the Mac Ping List, Freepmail me.

[palmer]

Surprising they had their best-ever quarter for Mac. They really need to create new computers although part of the problem is lack of new features from Intel

[lee martell]

Sometimes, your market has just been saturated, and nothing else is needed for a while. I’ve heard of certain iphones that were built guaranteed to break down after a short warranty expires. Maybe that’s how market saturation has been handled up to now.

[butlerweave]

Apple , take a bite but I have worms

[ProtectOurFreedom]

There are some amazing items in that list...

• Apple’s wearables business is approaching the size of a Fortune 200 company. Wearables, home and accessories GREW over $1.8 billion, thanks to amazing popularity of Apple Watch and AirPods. [POF - Remember at the launch not long ago so many people said Apple Watch was a loser, there was no use for it, and it was DOA?]
• Half of iPad buyers in Q119 were new to iPad and half of Mac buyers in Q119 were new to Mac [POF - staggering they are attracting that many new customers]
• ...paid subscriptions will cross 500 million mark in 2020. HALF A BILLION subscribers [POF - all I subscribe to is extra iCloud storage. Is this for music?]
• U.S. iPhone customer sat: 99% for iPhone XR, XS, and XS Max [POF - when did you ever hear of a satisfaction number like that? Never]

[Menehune56]

Ahem Apple, my mid2011 iMac is no longer OS upgradeable so I need a new one but I refuse to get one until you upgrade the iMac CPU. It’s been almost two years guys...

[Swordmaker]

I’ve heard of certain iphones that were built guaranteed to break down after a short warranty expires.

That denies the fact that users are keeping their iPhones longer because they last so long. If they were designed to break down post warranty, that wouldn’t work. That was a FUD (fear, uncertainty, and doubt) claim spread by Apple’s competition. An iPhone can run four or five years before being end-of-life and not being updated for the operating system. If the user replaces the battery when it gets chemically depleted, the device will run like new. . . But it will not run apps designed for later multi-core processors with super fast GPUs because an older phone doesn’t run as fast or as well as the later model iPhones simply because it lacks the capacity to run the newer apps as well.

[Swordmaker]

Apple’s wearables business is approaching the size of a Fortune 200 company. Wearables, home and accessories GREW over $1.8 billion, thanks to amazing popularity of Apple Watch and AirPods. [POF - Remember at the launch not long ago so many people said Apple Watch was a loser, there was no use for it, and it was DOA?]

Apple’s wearables division started its first year with revenues that WERE the size of a Fortune 500 company, coming in at number 213 if those revenues were from a stand alone corporation’s revenues. . . and only grew larger since then. Apple Watch revenues were greater than the revenues of the entire watch industry of all types in the second year.

[ProtectOurFreedom]

Apple Watch revenues were greater than the revenues of the entire watch industry of all types in the second year.

Wow...I had no idea. Kind of like how they captured all the profits of the entire mobile phone industry.

[Swordmaker]

Ahem Apple, my mid2011 iMac is no longer OS upgradeable so I need a new one but I refuse to get one until you upgrade the iMac CPU. It’s been almost two years guys...

Tim Cook doesn’t get incremental upgrades to processor or GPU having value. Usually iMacs get upgraded around March - April.

[SunkenCiv]

down $1.62 during the session, up $8.82 in after-hours trading.

[Menehune56]

Good to know, thanks Swordmaker!

[adorno]

You must've been suffering a few heart-attacks in the last 2-3 months, when your mothership wasn't doing so hot.

"Apple shares jump after barely beating on earnings, and iPhone sales drop 15% from last year"

https://www.cnbc.com/2019/01/29/apple-q1-2019-earnings.html

Now that Apple had a little bit of good news, though barely, you needed to bring in your huge list of positives.

Apple reported earnings for its December quarter Tuesday that largely fell in line with expectations. But iPhone revenue came in just slightly below projections.

But, hey, Apple is still making a lot of money. I do hope they continue doing so, for a long time.

I have no problem with any company doing well. What I'm not crazy about is how some people seem to be too fanatical about their preferred team, in this case, a freaking company. Yuck! Get a life already!

[Swordmaker]

You must've been suffering a few heart-attacks in the last 2-3 months, when your mothership wasn't doing so hot.

Didn’t bother me a bit. As an economist, I expected it. What goes up comes down. I don’t read ad hominem hate into things like you progressive Apple Hate Brigade members do. I have a fine full life. . . Quite successful in fact. You can’t seem to grasp the distinction between your opinions and actual facts.

[stig]

Tim Cook doesn’t get incremental upgrades to processor or GPU having value. Usually iMacs get upgraded around March - April.

It's amazing that this company is really running off of the fumes of innovation that Steve Jobs left behind. Cook is nothing but a bureaucrat, he doesn't have an innovative bone in his body.

[CurlyDave]

When Apple sells a product, they estimate value of free services (Maps, Siri) and that value has been reclassified under Services; cost to provide is also included in Services

They are moving revenue from devices into services in order to show growth in services.

In some ways this is reasonable, but it certainly looks like they are cheating just a little bit.

[PIF]

You can’t seem to grasp the distinction between your opinions and actual facts.

---

or the $.73 per share dividend ...

[PIF]

True, but innovation alone does not get a product to market worldwide in the quantities and qualities that make it successful and popular at an affordable price - that’s Cook’s realm.

Plus Cook said there will be “exciting” announcements later his year - maybe something cool, maybe something mundane ...

[conservatism_IS_compassion]

When Apple sells a product, they estimate value of free services (Maps, Siri) and that value has been reclassified under Services; cost to provide is also included in Services

They are moving revenue from devices into services in order to show growth in services.

In some ways this is reasonable, but it certainly looks like they are cheating just a little bit.

I see your point, but isn’t information technology all about “services?” What’s the difference between a telephone and a messenger? The telephone is hardware which performs the service of a messenger - much faster and thus interactive and more thorough communication (you hope).

Kinda blurs the line . . .