“Apple’s forecast-beating earnings Tuesday left some analysts worried it’s selling too many of its lower cost iPhone SE model and needs to diversify its current portfolio of smartphones,” Matt Clinch reports for CNBC.
“‘Margins went down, they sold a lot more iPhones SE than they had expected to, and Apple needs to be very careful of that,’ Moor Insights & Strategy’s Patrick Moorhead told CNBC Wednesday,” Clinch reports. “Chief Executive Tim Cook said in a conference call that the strategy of launching the lower cost iPhone SE was working and attracting customers to Apple’s ecosystem. However, some are wary of this bright spot in the report and suggest a popular cheaper model means tighter margins and less consumers buying the more expensive products.”
Clinch reports, “Moorhead believes that if Apple releases a next-generation iPhone 7 this year then that could lead to a much ‘better balance’ for profit margins at the Cupertino, California-based company.”
Read more in the full article here.
MacDailyNews Take: We are highly doubtful that the best supply chain manager the world has ever seen needs advice from, uh, what was it again? Oh, yeah: Moor Insights & Strategy’s Patrick Moorhead. Jack Nicklaus didn’t need putting advice from some duffer sitting in the gallery.
It’s all going to be just fine, Pat – except for your short position in Apple, perhaps. Go outside, take a deep breath, and relax. Leave the iPhone mix to the experts.
SEE ALSO:
Tim Cook: Apple’s services business alone will be the size of a Fortune 100 company by next year – July 26, 2016
Apple beats Street – July 26, 2016
[Thanks to MacDailyNews Reader “RK” for the heads up.]
As expected, the profit margins from selling lower cost iPhones appear to have reduced slightly, but at the same time, the income from services has risen significantly. Having a bigger user base means that Apple’s services sector gains more customers.
Apple does not solely make money when it sells hardware, it continues to make money from services and that is an ongoing revenue stream, rather than the one-off that a hardware purchase represents.
Tim Cook did mention the scale of Apple’s services business, but certain analysts remain myopic, seeing only hardware sales and disregarding everything else.
That’s because Apple has painted itself into a bit of a corner. It has set a precedent for high-margin products, and has basically said it doesn’t focus on market share.
Yet, the iPhone SE was ALL ABOUT MARKET SHARE. If their market share drops beneath a threshold the whole ecosystem suffers. Who cares about iMessage improvements, when only 50% of your friends are using iOS.
CarPlay, Apple tv, all becomes less and less important if market share drops.
And most important of all… mind share drops.
Market share IS IMPORTANT, despite Apple’s public aversion to chasing market share.
Refrain from hyperbole and quit shouting, please. The iPhone SE was not “ALL ABOUT MARKET SHARE.” Apple’s gross margin was still 38%, which is well within the range of roughly 36-40% that i have seen for years.
The iPhone SE fills an important cell phone size niche and addressed a market that was ready to upgrade from their iPhone 5s model. Relax…
I respectfully disagree. It was an old phone, with new innards with much a lower price.
It was the first time Apple offered an inexpensive phone that was still modern.
I agree that it wasn’t like what Samsung does by flooding the market with things like the Samsung Galaxy Ace, or The A7 series, but it was still a grab at market share. It was a Apple take at grabbing market share, but nonetheless that’s what it was.
Apple tried this once before, when it made the iPhone 5c… but in reverse. The was an old-tech phone with a new exterior.
Perhaps Apple has preserved profit margins, I haven’t seen the breakdown, but this is likely due in part to the fact that there wasn’t much new investment in tooling and R&D in the shell and other pieces on the SE. They were able to amortize all the R&D and equipment costs over another generation of phones.
@bluemeansgo
Utter nonsense. iPhone SE was not about market share, it’s simply a more compact version of the other iPhones.
If Apple wanted to go after market share, it wouldn’t do so by launching an iPhone in a category that doesn’t exist elsewhere – compact, fully featured, quality smartphones.
And so if Apple DID want to go after market share, how would it go about doing it?
– Making a plastic version? ( tried that )
– Making a slower, less capable, phone
– Making a 8GB version for less $$?
If the SE is simply a more compact version with modern innards, then why is it priced so aggressively? It’s not as if Apple shrinks away from padding margins and profits when it can.
Surely the iPhone SE, with its modern innards squished into a more compact form commands a HIGHER price than the iPhone 6.
Rather, the iPhone SE is a phone that is, technically speaking, right in between a $549 iPhone 6 and a $649 iPhone 6s… but it is priced at $399. Not $499. Not $449… but $399.
It’s discounted. It’s old but modern in a uniquely Apple way, and it’s the first phone in a LONG time that Apple has priced at or below other phones.
If that’s not an Apple-style grab for market share… then what is?
Apple’s income was down year-over-year.
iPhone sales were down.
iPad sales were down.
Mac sales were down.
And the problems may get worse. Samsung phones have leapfrogged iPhone in some technologies (e.g. camera, water resistance). There is downward price pressure on smart phones as subsidies are disappearing and they are becoming more of a commodity.
And then there is the Mac. Apple still charges a premium price for old technology. The Mac line has never been so unattractive.
Tim Cook really screwed the pooch at Apple. He says he is optimistic but what else would he say? He should be dumped ASAP.
Good lord these type of things piss me off. No matter what they do Apple is always criticized, if they do well? They’re doing too well. If they didn’t meet expectations? They’re doomed. If they just do normal within guidance? They’re doomed. If they don’t change the outward appearance of a product every year? They’re not innovating. If they do create a new form factor that other people copy incessantly? That was inevitable. If they make a new system board that’s really small? It’s too small and you can’t run crysis on it. The list goes on and on… It gets so frustrating as a share holder when your broker is constantly trying to get you to sell your stock in the company so they can short it. Mine for a long time wouldn’t even call me back when I kept holding on to it back in 2008. It’s also the same guy who advised me not to buy the Google IPO in 2004…. Needless to say I left when I could. But goddamn these idiots don’t know their ass from their elbow sometimes at best, and at worst it’s a cynical manipulation to get your money.
Well said. I think the disingenuous feeling for these anal-cysts is “Apple may not always do wrong but they’re never right.” The fix is in, however undeserved, and will probably remain that way sadly.
However I agree with some of the Mac sentiments below. Especially in regards to the languishing Mac Pro. I just helped a friend upgrade a Windows 7 machine with a 4 drive internal RAID and new GTX 1080 video card which reminded me why I both loathe and like PC’s so much. I love the upgrading ability but loathe the OS and it’s inherent klunkiness. OS X seems like a very smooth OS experience compared to the rough-hewn Windows which remains an OS only an IT doofus could love.
I agree with you about that. I’ve said before that we’re happy with our trash can Pro’s, but I would love to be able to slap new video cards in there when they come out. And other than the storage our 2012 MacBook Pro’s as far as compute performance are almost as fast as the current systems. I think this fall is going to be a complete top to bottom redesign of the entire lineup around the new generation silicon, and I also think they’re working with amd and nvidia to provide cards for the pro.
But yeah, the Mac lineup other than the late 2015 27″ iMac (which runs sky lake processors) hasn’t really been current for a while and I can only imagine that there wasn’t a major benefit for them to not slap in newer chips into the 15″ Pro’s. And in the Mac Pro’s case the new Xeon’s weren’t ready until May anyway. And I also agree when it comes to upgrading pc’s as well. It’s easy to find parts, but making them all work is a royal pain in the ass, and the OS is not nearly as easy to upgrade and work with. Case in point: we have some older PC notebooks that we use for micro station and some other obscure Windows only stuff. I was upgrading one the other day and all I wanted to do was max out the ram, slap in an ssd, and get it back up and running. So I put in compatible ram, cloned the disk, and put everything back together only to find out that the system cannot support more than 12gb of ram even though it’s on ivy bridge (which supports e board doesn’t, nor will it support faster memory than the 1333 drr3 that it came with. Also the cloning software couldn’t do a block by block copy and the system32 files were missing…. So, I had to re clone the drive using a “proportional” method (even though the drive was larger) and then boot the system from the original drive in order for the system to recognize and initialize the cloned disk. And even after that, although the system booted, it was missing passwords and the bit locker profile for some reason. Made no sense. Long story short, it took 4 ½ hours to fix and now it’s fine. But when update our macs it is basically automatic, boot from an external, install the OS, and then restore from the time machine backup. Or use carbon copy cloner and boot.
Precisely. Upgrading a Mac Pro takes a few minutes, a PC can be hours or all day. I think the current Mac Pro should not leave the lineup, just offer up an upgradeable tower too for those who want that. But I bet if they did do that everybody would go back to buying a tower. Who doesn’t want to future proof was much as possible? Apple also needs to embrace Nvidia cards for those who use Adobe apps. Give the customer what he needs, not what you choose to give.
Apple still declined $7 BILLION in revenue!!! $7 BILLION!!! that’s like 2 decades of Surface sales.
@still waiting, you mentioned that AAPL revenue declined by 7 billion, but you also need to subtract 3.6 billion dollar of inventory reduction from that. The Actual sell-through revenue was 3.6 billion dollar higher.
In addition to inventory reduction, also need to consider the effect of stronger dollar compared international currencies (especially strong gain against the Chinese Yuan), which reduces revenue when converted back to dollar for reporting.
Yes, the “Doom & Gloom” reporting is WAY too over hyped. Apple, as a whole, is no where near collapsing. We all knew the iPhone 6 bubble would impact this year’s numbers.
However, did anyone notice that Mac sales are off 11% from last year and down 13% as a function of revenue? And, Apple has no excuse like the huge bubble from the iPhone 6! The Mac has been languishing for many months — in some cases years. Further, the revenue number being down more than the unit sales number being down strongly implies that Apple is selling fewer of the Pro machined (rMPB and MP) where the margins are typically best. Pros are tired of waiting for best of class machines from Apple, and they are either going with Hackintoshes or with Windows or Linux machines.
Cook and team are taking Steve Jobs’ statement about sucking the Mac dry and moving on to the next big thing FAR too literally. Even digging into Steve’s “truck” statement reveals that he never meant to abandon desktops and laptops but rather to make them an integral part of the whole ecosystem. (Ford, GM, Chrysler, and the rest still make trucks and come out with new and improved models every year! They just sell fewer trucks than they do cars.)
Apple has one of the largest R&D budgets on the planet. Apple needs to throw a few of those dollars at the Mac — especially the Pro models.
You are 100% correct. Apple’s neglect of the Mac is CRIMINAL. With Apple’s profits we should have WORLD CLASS Mac Mini’s, Pros, and MacBook Pros out on the shelves YESTERDAY.
I am well and truly disgusted at how Tim Cook has mismanaged the Mac.
You forgot to type the word “disgusted” in capitals. It makes it look like you’re only slightly annoyed.
Agree with you totally. In addition, this inventory reduction corresponds to close to 6 million phones which were not counted as sold, all of which are high-end phones, as there was no iPhone SE inventory at the end of last quarter.
Sorry, my comment above was in response to Alanaudio’s comment below. It is wrongly placed
The reason margins went down was not only because of selling lower-priced iPhone SEs, but also due to reduction in inventory of higher-end phones by 3.6 billion dollars, as was mentioned during the earning calls. Even though the inventory reduction was almost double what they had guided previously (2 billion dollars), the margin came at the high end of their guidance, which is impressive.
What you said about margins is quite correct and is re-enforced by the fact that Apple’s guidance for the next quarter is that profit margins will improve.
The next iPhone model is unlikely to make an appearance sufficiently early to make much of a difference to the next quarter’s figures, so the expected improvement for the next quarter’s margins has to be explained in some other way and that inventory reduction appears to be as good an explanation as any.
A few years ago these analysts were telling us that Apple would go bust if they didn’t make a cheaper phone.
And now they’re worried… because Apple has made a cheaper phone.
Who pays these idiots?
Investors pay these idiots commission every time that shares are bought or sold, therefore whatever your position, they need you to do something quite different or else they don’t get paid.
If more investors understood that, there might be a bit more common sense in the market.
Really was a hoot listening to some of these contortionists (sorry, Analysts) on the call yesterday, trying to trip Tim Cook and Luca Maestri up on their logic. Guess who won!!
Wallstreet is an absolute bloody joke!!
As soon as I hear some jouranalist or some moron starts a sentence with “Apple needs…” I tune right on the laughter mode.
Great watch Apple.
It is foolish to think that’s Analsist or more accurate ly stock broking firm who hires those analyst will speak any sense whatsoever ever. The only thing they understand is , Stock going up or down. And then make Shitload of money on it, like the pest they are.