Apple released its best ever third quarter earnings report today, and traders have been sending the company's shares for high hours after trading.
Thanks to record revenue from service business and strong growth from wearables, Apple is heading into the most important period of the year that is ready to make money. Investors had a lot of questions for CEO Tim Cook and CFO Luca Maestri during today's conversation, and the duo revealed some important things we didn't expect.
iPhone is no longer king
For the first time since Q4 2012, the iPhone accounts for less than half of all Apple revenue. Wearables is Apple's fastest growing product category with AirPods and Apple Watch growing in popularity. Services are also booming. Together, the two categories are approaching the size of a Fortune 50 company.
All these categories depend on the iPhone still being popular. Apple can be put in a tough place for growth when markets are more saturated, making other projects such as healthcare, augmented reality and self-driving cars even more important.
Tim Cook says they are working on some services that are not capable. t is connected to Apple's products, but most of them are aimed at Apple's active installation base.
Wearables are an unsung hero
Apple's wearables business is now larger than 60% of Fortune 500 companies. Last quarter, Apple made more money on wearables than did iPad or Mac. Services and iPhone are the only product categories larger than it is now. Analysts have seriously underestimated the upside of Apple's portable clothing. AirPods are the new iPod, and Apple Watch is also keen for Apple Watch. 7% of Apple Watch buyers last quarter were first time buyers, while 25% upgraded from an old model.
China problem is overrated
We've heard all year that Apple was facing some major problems in China, but that doesn't seem to be true.
Tim Cook stepped in during today's earnings call to reassure investors that the business is bouncing back. Apple's revenue in mainland China increased the year before. The iPhone-installed base grew year over year in China. Apple also saw double-digit revenue growth of services in China.
Apple took some price actions to help sales and made some exchange and financing programs. Tim Cook said they also see a broader engagement with the Apple ecosystem. Each product category improved sequentially in mainland China, leading Cook to say things look "pretty positive" going forward.
Mac Pro could make an American comeback
At a shocking moment during today's conversation, Tim Cook said that Apple can retain Mac Pro production in the US after all. The company recently applied to have some parts excluded from Trump's tariffs. Trump quickly fired back on Twitter that Apple should do so in the US or no deal. Cook told investors that the company is looking into it.
"When it comes to exclusion, we've created Mac Pro in the United States. We will continue to do so," Cook said. "And so we are currently working and investing in the capacity to do so because we want to continue to be here."
It is unclear how much of the production was to be moved to the United States. Apple CEOs did not elaborate on what moves the company is making, but it will eventually decide to assemble Mac Pro in the US, though many of the parts will still be sourced from China. Time is running out to unlock those details, but as Apple told developers during WWDC 2019 that the Mac Pro will launch by the end of the year.
Apple Card coming in August
Tim Cook announced the launch of the Apple Card in August. The news came at the height of a report last week that claimed it would be coming in a few weeks.
The Apple card was originally unveiled during an Apple event in March. Thousands of Apple retail employees have reportedly beta-tested this past month. Some analysts expected the card to launch when iOS 12.4 was released to the public, but an official launch date has not been provided.
Services will increase revenue by 2020
With Apple Card launching next month and Apple TV + and Apple Arcade coming this fall, investors will know when they will begin to see Apple's investment in new services begin to pay off. Apple CFO Luca Maestri warned that the new services will not be big money makers right at launch.
During the conversation, Maestri revealed that there will be some free trial periods for the new services. He did not explain how long trial periods will be, but because these products will be launched this fall, investors will not see their growth in a couple of months.
"The road to monetization is taking a while," said Luca Maestri. "All of them will help us with growth rates as we move into next year."
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Apple has some exciting projects in the works.
Photo: Duncan Sinfield
Photo: Duncan Sinfield
Investors always try to get a little glimpse of Apple's product plan during the Q&A section of the revenue call. And every time Tim Cook turns them off. This time, Tim said that Apple has exciting new products ready to come out for the rest of the calendar year. He said Apple has made great efforts in an augmented reality. We also know that the company has a self-driving car project in the works.
If you need more proof that Apple is preparing something exciting, check out R&D spending. The company spent $ 4.3 billion on R&D last quarter. It was more than it was used in 2010 and 2011.
Guidance for the fourth quarter of 2019 is quite "meh"
Apple's Q4 revenue guidance is quite high for Q4 2019 The company estimates between $ 61 billion and $ 64. B. Last quarter, it generated revenue of $ 62.9 billion, making Apple look modestly expected. With the iPhone launching for 2019 right at the end of Q4, some investors hoped Apple's guidance would be more optimistic, signaling that a wave of upgrades is coming. Instead, Apple said it expects to see the strongest growth from non-iPhone categories next quarter.