Apple CEO Cook: We’re seeing ‘extreme conditions unlike anything we’ve experienced before’ in the global economy

“What’s keeping the CEO of a company that just reported the most profitable quarter in history up at night?” Luke Kawa repots for Bloomberg. “For Apple Inc.’s Tim Cook, it’s the ‘economic challenges all over the world.'”

“‘This is a huge accomplishment for our company especially given the turbulent world around us,’ said Cook, immediately after running through the company’s quarterly financial highlights on a conference call,” Kawa reports. “While pointing out that Apple had been performing quite well in China last summer—unlike some other firms—he suggested that the forward outlook was not nearly as bright. ‘Notwithstanding these record results, we began to see some signs of economic softness in Greater China earlier this month, most notably in Hong Kong,’ he said.”

Our results are particularly impressive given the challenging global macroeconomic environment… We’re seeing extreme conditions unlike anything we’ve experienced before just about everywhere we look. — Apple CEO Tim Cook, January 26, 2016

Full article here.

MacDailyNews Take: This too shall pass.

Although things are fairly bleak in various countries, from Russia to Brazil, and some other economies tied to — oil-based economies — we do believe that this too shall pass, and that these countries will be great places, and we want to serve customers there. We are not retrenching, we don’t believe in that. Fortunately we are strong enough to continue investing. The downside of economic stress is that some asset prices get cheaper and that sort of thing, this is exactly the period that you want to invest and do so confidently. — Apple CEO Tim Cook, January 26, 2016

SEE ALSO:
Jim Cramer: Apple Inc. is set to outperform – January 27, 2016
Apple CEO and CFO see broad global economic ‘weakening’ – January 27, 2015
Most Apple analysts maintain positive ratings, but cut price targets – January 27, 2015
Piper Jaffray: iPhone resume growth in 2016 despite poor macroeconomy – January 27, 2015
Apple highlights services in search of Wall Street’s love – January 26, 2016
Apple reaps $18.4 billion quarterly profit, the largest ever recorded by a single public corporation – January 26, 2016
Apple beats on earnings; sets all-time records for revenue, net income, and EPS – January 26, 2016
MacDailyNews presents live notes from Apple’s Q116 Conference Call – January 26, 2016
Apple beats Street with all-time record quarterly earnings – January 26, 2016

36 Comments

  1. If Apple does big share buybacks during this dip, does a dividend increase usually follow? Kinda like diesel price follows regular 87?
    What better way to use a portion of $216 billion than to buy back shares on a dip or give out dividends cheaper. Not greedy…I use my dividends to buy more AAPL shares.

  2. Two thirds of revenue comes from outside the US. The unprecedented growth of the US dollar against the rest of the world’s currencies makes it that much more difficult for Apple to sell iPhones (and other stuff) to the rest of the world.

    That is probably the biggest reason for the cautious outlook.

  3. Why does wall street penalize the company with the $216 billion war chest for predicting bad economic weather in the next quarter? I’d be watching for some of the competition to fold.

  4. The oil thing is that probably in next 10 years all cars will be electric powered. These Oil based economies only have a short period of time before their revenue stream dries up

      1. And will continue to be ten years away as long as the oil lobby is as powerful as it is.

        Unless Apple comes out with an electric car. Then we’ll see a rapid build-out of charging stations and increase in battery capacity.

        We may well be nearing the critical moment, where energy storage of battery per unit of weight begins to approach that of fossil fuels of today. Once that equation is solved, economics of scale will allow batteries to become less expensive and mass produced. I don’t think we’re too far from that moment, despite all the obstacles put in the path of that development by the oil industry (and they are fierce and numerous).

        1. This is why oil will remain king for years.
          (most) Americans fully understand this.
          It is in our DNA.

          Yes, batteries will continue to evolve,
          as will fuel cells and solar…
          but for us, not the rest of the developing world.

          Your ‘big oil’ paranoia is childish.

          1. It is naïve to believe that the free and unrestricted market solves everything.

            When GM was forced, by California’s law, to develop a zero-emission electric vehicle in the early 90s, they did it against severe push-back from the oil industry. When it was introduced, people in California loved it and wanted to buy it, however GM only allowed them to lease it. When the California legislature changed political hands and that specific law was reversed, GM immediately stopped production of that EV1 (even though it was quite successful), and as users were completing their leases, they collected all of the EV1s, destroying each and every one of them, even though many of people wanted to keep them (continue leasing, or buy out). Widely acknowledged as accurate, the documentary “Who killed the electric car?” tells the story.

            Unregulated monopolies will as we all know, become predatory (Standard Oil, AT&T, Microsoft…).

            1. Yes, it’s true.

              Yet progress is inevitable. There are now 59 models of hybrid electric cars sold in the US today: http://www.motortrend.com/class/hybrid/ And 29 models of electric vehicles: http://cleantechnica.com/car-answers/ The change is coming fast.

              Actually, it is not so fast. Hybrids and electric cars have been around for a long time. The very first car ever invented in the late 1800s was an electric car. And GM had an EV in the 1980s.

              You can thank people who drive hybrids and EVs, at least in part, for current low prices of oil. Yes, supply is up. But demand is also flat and, hopefully, declining …despite relentless population growth.

              Hey, why not help? Plan your next car to be a hybrid, plug-in hybrid, or EV ! Get with the beat.

        2. Yes and no.

          The oil lobby is too powerful, true, but the Obama administration was wise enough to foresee that the oil industry does not need more handouts. Now that Iran and Iraq oil fields are back online, nobody in the USA needs a new pipeline to export American oil. We will use it domestically instead. Win for the long-term thinkers on that issue.

          As for batteries, they are so far away from reaching parity in energy density with cheap liquid fossil fuels that you will not see electric cars entirely displacing oil burners in your lifetime.

          HOWEVER: energy density is only part of the story. Short commute distances, the challenge of correcting urban smog, and the economics of burning fuel while sitting in traffic jams and stupidly timed traffic lights makes it strongly desirable to use electric cars in the city. Forward-thinking cities will undoubtedly find it better to incentivize the switch to electrics, starting with fleet vehicles like cabs. Of course, Uber and Google are focusing on this new market opportunity now.

          The problem with new vehicle developers today, including the rumored Apple car, seems to be that all these companies are biting off more than they can chew. Most of them, with Tesla and BMW being notable exceptions, are putting must of their effort into complicated networking and automation. BMW and Tesla dabble there, but the core of their work is toward electric powertrain development. That is where people ARE willing to pay.

          So where the loyal Apple fans think that an Apple car will be a leap forward in performance, it remains to be seen what value Apple can provide over all the other electric cars on the market. Dashboard electronics/navigation/infotainment? Maybe. Fashionable styling? Whatever. Superior powertrain or chassis or battery? Nope. Until Apple makes their own batteries & motors & controllers, it is nearly impossible for them to beat what is already on the market.

          Final thought: the lawyers will have a heyday whenever an autonomous vehicle has an accident. Why would Apple want to play in such a high risk/low profit market? If Apple wants to improve its margins and enter new markets, then the medical field is ripe for innovation. Professional computing tools in many industries could and would be using Macs if Apple would only serve them. The car is a money pit.

          1. Partially, depending on your dependency on fossil fuel for the electric energy. Currently, it is about less than half in the US, and even less in the rest of the world. More importantly, the power-generating plants that use fossil fuels convert energy in a much more efficient way than current cars. Unlike vehicles, that operate across a wide range of very inefficient operating modes (slow/fast, lot of idling, etc), power plants run at constant speed and at most optimal burn rate, getting efficiency that is more than twice greater than even the most efficient ICE engine in a car.

            So, even if you charge your electric battery from the grid powered by coal, you are still dramatically reducing emissions.

            1. Unlikely that anyone will ever see a post in a three week old forum…

              So, the US is really bad about the fossil fuel dependence. The trend is likely improving, although clearly not as fast.

              My other point remains; fossil-fuel powered electric generating plant is much more efficient than the ICE engine in a car, so a plug-in electric would clearly be environmentally better than an ordinary, gas-powered car with an internal combustion engine, even if you kept charging it from a coal-powered grid.

      2. The battery tech was not around then for that to be viable in the 1980’s. Today nearly every car make has a electric car and even Porsche and Lamborghini are releasing models

        1. Yes, with government subsidies and requirements.
          They do not outperform in many areas, nor are they that ecological from design to landfill.

          Still, it is good they are trying.

          1. Towertone, you are not up to date.

            Let’s just refer to the Nurburgring lap times record board, which is generally considered to be the most complete test for overall supercar performance.

            https://nurburgringlaptimes.com/lap-times-top-100/

            #3 on the list is the Porsche 918 Spyder, which is a hybrid that set its time (6:57) in 2013.

            McLaren and Ferrari, who have not allowed their latest hybrid supercars to be timed (they lost!) have also determined that traction control of a hybrid system brings overall benefits to the supercar … at a price.

            For the average rural driver in the USA, electric technology does not make economic sense, but for urban and ultra-high performance drivers, the times are changing.

        2. I just had to replace a Interstate car battery after 3 years; it had a 5 year warranty. How do I drive 400 miles to Kansas City for BBQ in less than 2 days when I’m constantly stopping for a battery charge?

          Now if Apple develops “new” physics for battery technology that will be a new growth sector.

          1. There are new battery technologies, which will probably be going to market within five years. Here is one example that I learned about today:

            http://www.anl.gov/articles/stable-superoxide-opens-door-new-class-batteries

            This battery will be able to hold five times more energy than conventional batteries. This means a vehicle like Tesla, which can currently travel around 300 miles on a charge, will be able to travel 1500 miles on a charge. That should get you to your BBQ and back to your home with juice left to do daily errands for another week or so.

          2. Dude, if you are worried about battery range and charge time, then just get a hybrid, like a Toyota Prius. The driving range on an 11.9 gallon gas tank is nearly 600 miles, at over 50 mpg. It would get you to KC in 8 hours and the tank would still get you half way home. My 2007 hybrid battery is still running strong. It has averaged over 50 mpg for 70,000. And if you want more mpg for daily commuting and errands, then get a plug-in hybrid, which bumps your mileage up for shorter trips. Certainly beats 22 mpg, which is the average for all cars in the US. Test drive one. Buy one. Change. Help the planet.

            Then when EVs are good enough for your driving needs, trade up.

      3. The first electric car was at the turn of the last century more than 100 years ago. Been a pipe dream ever since.

        For those that were born yesterday, we have been running out of oil since it was first discovered. Another pipe dream. It’s a renewable resource. Duh!

  5. All publicly held companies should have to pay 80% of the profits out to shareholders. That’s a market stabilizer. That will result in real evaluations people can truly appreciate.

    The 80% rule, is best thing for those companies not making a profit, it will force those companies to hit or get off the pot. (no bad language here 😇. ) Those companies need new ideas, diversified work force, and no CEO parachute plans. Fire means no money … like the other none 1%ers that work hard for a living. It is crazy to have to pay somebody more money after they have run a company into the ground just to get rid of them. Especially in a right to work state. (let them feel that)

    Companies not making a profit are wasting resources, best they go under so someone else can try their hand at it, or several somebodies could try.

    1. That is absurdly ridiculous. That is so obviously NOT the concept of the publicly owned companies, or share holding. Let me explain.

      A company sells shares to the public. These shares represent partial ownership in the company. This is NOT a loan; people aren’t buying the shares in order to receive some interest payments. They are only getting partial ownership of the company. It is entirely the company’s own right to decide how to manage itself, including how to manage revenue and profits and what to do with those resources. Owners get to decide whom to elect to the board of directors, and they can, based on their proportion of shares, influence their decisions, but that’s the extent of their direct control. It would be unconstitutional to legislate some mandatory disbursements to anyone (owners, workers, whomever) from the profits. This would seriously constrain ability to competitively grow business.

      Share holders are perfectly entitled to demand part of the profits. Carl Icahn did exactly that; as a large AAPL share holder, he publicly demanded, for years, that Apple start paying dividends (as well as buying back shares). This is all perfectly legal and common-sense.

      Legislating that an arbitrary percentage of profits be paid to the share holders would be completely destructive. No company would ever consider raising capital by offering public shares, if it means that they’d have to forfeit most of their profits. Even loan sharks are much cheaper than that.

      1. You are still doing drug? Just say no! Better than that stop doing them. Companies at one time created shares and sold them in order to raise money to start up or to grow a business. Those companies were unable for whatever reason to get banks to make that loan, so they went to the public. The deal, make money, pay a dividend to the shareholder. Today no, no, no, for some reason the company is to hold on to that money until hell freezes over. The CEO’s are to live as if the company’s money is their money. What the hey?

        If a company doesn’t not want or need the money they should not sell shares to the public. If they sell shares what do you think the people who buy them are entitled? Watching the board of directors, and senior management enjoy the money? NO!

        Any company that does not want to pay their shareholders are free to buy the shares back. Dell comes to mind. Why 80%? It’s fair! It keeps a company hungry without driving them out of business. Equal and fair cause ever company must do it. Also any company doing business in the US should have to do the same.

        A tremendous boost to the economy, it would provide. Better CEOs cause they must spend their time in product development and company efficiencies. Instead of whining about taxes. Products bring in money, taxes don’t. Failure is not the governments fault, regulations either.

        I would buy shares in a company to make money. For the company to hold on to the money, doesn’t fit into my plans. What about the rest of you investors? You only want what they deem you may have. Ok that’s you! We live in a computer age, you don’t want your cut tell the company and they can hold on to it. I would want mine though.

        1. Feel free to buy the shares of the company that pays back 80% of their profits (I’d be curious to hear which company is stupid enough to do that.)

          But there is absolutely no way in hell anyone can force any company to require some arbitrary percentage of their profits be paid to anyone else, whether those are shareholders, owners, employees, management, board of directors, or someone else. As i said, in addition to it being unconstitutional, it would be disastrous for literally every successful and profitable public company.

          Investors who buy shares in a company do so for variety of reasons, but the one common thing among them all is that they do it with the expectation that the value of those shares will grow over time.

          Almost half of public companies in America pay no dividends. For most investors, this is much better. Dividends are taxed at much higher rate than capital gains. It is therefore much better for a company to reinvest profits (and thus generate more profit and consequently increase the value of the stock), rather than spend all that money on paying out dividends.

          If you want steady dividends, buy treasury bills.

          1. How?

            And I agree with BOB, why should they not pay a dividend? Why after raising money in what must have been a risky venture, the banks did not give them a loan, they would and should be exempt from paying those that invested in the company part of the profits? 80% is as good a number as any other. If this is what you have to do to make a company work, hum. You must have gone to business school.

            If they take out a loan they pay that back and at a set rate.
            What are you talking about? Yeah, you got to be a business school grad. You’ve got an MBA too… I bet.

            1. I have two degrees, neither of which has anything to do with MBA (one is fine arts, other is engineering).

              80% of profits is a loan-sharking share. It is simply absurd. Even feudal vassals were taking less from their serfs.

              Nobody prohibits a company to pay dividends; if they want, they can pay 80% of their profits. But there is no way in hell (as I already said) that any entity should arbitrarily force any specific percentage. There is a reason the developed world is developed today: open and free markets. If you don’t like investing in companies that pay no dividends, then invest in those that do. Apparently, there is this company, Azure Midstream Partners (AZUR), that is currently trading at $2.4 per share, and last year, they paid out $0.74 in dividends (over 30% of today’s value). That is as high a dividend return as you could possibly get these days. But then you’d be stuck with a pretty high tax bill on those dividends.

              Apparently, there are very many people who believe that there is nothing wrong about buying a share of a company and not getting anything directly from them in return. If the company is showing strong growth and is generating strong profits. the value of its stock will grow much faster than any possible dividend they could pay out (look at AAPL over the past ten years).

            2. Again No. You suppose apple would have sold less product, less iPhones, because they would have paid 80% of profits to shareholder. No. If Apple had paid that dividend out millions of people, 10s of millions would be richer and Apple would still sell 10s of millions of iPhones. Even Jobs said “stay hungry”, that does not happen when cash mounts up at these companies. Those that don’t want the money could refuse it.

            3. You very clearly don’t know how this works. As it stands, dividend payout seems to be eating up around 20% of average quarterly profit. Share buyback takes another 20%, which is a massive chunk of money (almost $8 B for last quarter). As the most profitable company on the planet today, Apple still has some money left for R&D (in order to continue to grow). Most other companies aren’t that lucky.

              If you don’t like how Apple distributes profits, get AZUR. Their dividend payout is apparently bigger (thanks to a big drop in stock value over past year).

            4. I see you’re referring to the dividend yield. Bloomberg also has it around 2% (2.23%).. That yield is a function of the stock price so would come out to about $2/share per year. With over 5.5B shares outstanding that would be more than $11B distributed as dividends over the year, so roughly looking at a annual profit somewhat over $55B.. Since Predrag is giving a percentage of the quarterly profit amount it could well be at 20% as he says. Need to see the numbers he is using.

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