Apple’s guidance shows pricing moves are paying off

“The market cheered Apple’s outlook for the second quarter. The rosy forecast shows that some of the moves Apple has been making to improve its competitiveness in certain markets are starting to work,” The Motley Fool writes. “For example, Apple has been absorbing foreign exchange hits and making trade-ins easier, among other efforts.”

“In this segment, host Dylan Lewis talks Apple with Fool contributor Evan Niu,” TMF writes.

[Apple’s] guidance was actually pretty strong, particularly coming off all the pessimism around how badly they missed in the fourth quarter. Their guidance came in above expectations. They’re expecting second quarter revenue to be $52.5 billion to $54.5 billion, versus the market was expecting under $52 billion. They’re comfortably above expectations there. Gross margin should be around 38%. Tim Cook basically said that Apple is starting to recover in a lot of these key markets where it struggled in the fourth quarter, most notably China. They’ve been taking a series of measures to try to improve their competitiveness, such as absorbing foreign exchange movements in order to stabilize local pricing. They’re reducing a lot of friction related to smartphone trade-ins, a bunch of little levers like that they’re pulling. In aggregate, when you combine the effects, I think that’s what we’re seeing in this revenue forecast that’s pretty good. I think it’s a testament that those efforts are working, at least if they can hit their forecasts, unlike they did when they missed so badly in December. — Evan Niu

 
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MacDailyNews Take: It’s almost always all about the guidance.

Here’s Tim Cook from Apple’s Q2 2019 Earnings Call on April 30, 2019 discussing Apple’s recent pricing adjustments:

Our year-over-year revenue performance in Greater China improved relative to the December quarter and we’ve seen very positive customer response to the pricing actions we’ve taken in that market, our trading and financing programs in our retail stores, the effects of government measures to stimulate the economy and improved trade dialog between the United States and China…

We’re seeing positive customer response to recent pricing actions in certain emerging markets, as well as enhancements to our trade-in and financing programs and our year-over-year performance improved relative to our December quarter results in Greater China, in the Americas and in Japan…

Talking about China specifically… I mentioned four things that I believe are responsible for the better year-over-year performance in the Q2 relative to Q1, and also the final weeks of March being better than the Q2 average. Those four are the price reductions, but — that’s one of them, but there are three others and one of the others is the trade-in and financing programs that we instituted in our retail stores. Clearly, what we’ve learned here and it’s not a surprise really is that, many, many people do want to trade-in their current phone. It does from a customer user point of view, the trade-in looks like a subsidy, and so it is a way to offset the device cost itself and many people and literally every market that we’ve tried this in, there is a a reasonable number of people that want to take and pay for something on installments instead of all at once. And so it’s a little different in each market in terms of what the elasticity is, but you can bet that we are learning quickly on all of those.

The other two items that are not insignificant in China that I don’t want to lose here is that the stimulus programs, I believe, are having an effect on the consumer. The one that got the most visibility and that happened in early April was the VAT reduction from 16% to 13%. So it’s a very aggressive move, but there are other stimulus programs as well that likely have an effect at the consumer level. And then finally, and this is not to be under weighted either, I think the improved trade dialog between the countries effects consumer confidence in a positive way. And so I think it’s sort of the sum of all of those things.