Following the release of Q3 2019 financial results today, Apple CEO Tim Cook and CFO Luca Maestri held their quarterly live Q&A session for financial analysts. We covered the session live, with updates below in chronological order as the conversation continues.
Today's questions and answers come after Apple revealed largely expected results, including a 1% improvement in overall revenue – enough to barely qualify as a record quarter – with continued declines in iPhone sales, offset by growth in services and revenue that can be sustained.
Tim Cook: Prepared Notes
Cook opened the conversation by discussing the company's recurring growth in the quarter, led by enhancement of portable and sales services, which are collectively approaching the size of a Fortune 50 company. Services look strong: Apple is now gathering TV content from a variety of vendors, and the Apple TV Channel service will continue to grow as customers continue to enjoy TV services. Apple Pay is growing, expanding to transportation systems and being offered, and moving to more countries. Apple Card starts rolling out in August.
The demand for Apple Watch continues to be excellent, as is the demand for AirPods, making the laptop business very strong. This was the third consecutive growth for the iPad, driven by sales of the new iPad Air and iPad mini. And Mac grew due to introductions from MacBook Pro and MacBook Air, with a "killer" of $ 999 MacBook Air. It also looks forward to debuting the most powerful Mac ever, the Mac Pro (with Pro Display XDR) in the fall.
Sales in Greater China returned to constant currency growth. The iPhone business had improved year over year, in part thanks to consumers' responses to trade in deals and government incentives. App Store sales have also been strong.
The purchase of the Intel smartphone modem is a continuation of Apple's strategy, given under Steve Jobs, to own and control the most important technologies it uses in its products. Apple plans to welcome Intel's engineering team into the company, as the largest collection of people and the second largest acquisition of dollars, in the company's history.
As debuted during WWDC, Apple's new operating systems will provide many new features for iPhones, iPads, Apple TVs, Apple Watches and Macs. In particular, macOS Catalina's new Catalyst feature will allow iPad apps to arrive on the Mac ecosystem, and the company expects many of them to be available when Catalina ships in the fall. The company is also excited about AR technologies introduced by WWDC, including ARKit 3 and Reality Composer.
Luca Maestri: Prepared Notes
Apple CFO Luca Maestri noted that the company returned to growth despite challenging exchange rates, and all geographic segments grew in constant currency. The small percentage growth seen during this quarter was an improvement over the declines earlier this year, and records were set in a number of countries. Apple expects revenue growth for the next quarter despite $ 1
The latest consumer survey shows US iPhone customer satisfaction of 99% for iPhone XR, iPhone XS and iPhone XS Max combined. In addition, the portable business alone is the size of a Fortune 200 company on its own.
Service revenues grew by double digits in all territories and now account for over 21% of the company's revenue. There are now over 420 million paid subscriptions, and the company believes it will surpass the 500 million mark by 2020, without relying more than 0.25% on a single app for the resulting revenue.
While Mac numbers were a bit up, especially at a time of continued decline for the PC industry as a whole, and almost half of buyers were new to the Mac platform. The iPad was slightly up, and has a 94% customer satisfaction rating, with continued interest from a strong majority of business buyers interested in buying tablets; 60% of major banks support iPad internally, developing software to radically cut customer onboarding – in one case from one hour down to 12 minutes.
What gives you confidence in a strong September quarter? Luca says there is likely to be continued strong growth in non-iPhone categories, including wearables and services.
What drives renewed success in China? Tim says that the state's stimulus / VAT reduction, pricing actions, iPhone exchange programs and growing engagement with the broader Apple ecosystem helped to increase everything in China.
Any further details about linearity, especially app deterioration in China in June? Tim adds that the company looks at linearity in detail, but does not say what it has concluded.
What happens in services? Can this react? Luca states that installed base continues to grow in every geography, and all major product categories, which is important for service providers. There are two interesting factors: The App Store had a sequential acceleration of growth, including in China where government titles were approved by the government, but AppleCare growth slowed down due to expected factors, including the real strength of several AppleCare retailers last year that may be hard to fight. Subscriptions are on the uptick, new services will be launched soon, and between Apple Card, Apple Arcade and Apple TV + there will still be speed in services.
Luca adds that Apple News + is available right now, and TV channels as well. The new services will have different trial periods, and the paths to monetization will take time.
How successful was the iPhone & # 39; s trade-in program? Tim says that it was quite successful in retail and trade as a percentage of total sales is substantial, with financing a key element of it. Between retail and online, this combined led to growth in June, he says. They advocate the use of trade-ins more widely with transport partners and retail partners.
In response to a specific question, Tim adds that customers are keeping phones longer, but Apple is still expanding its customer base. In addition to customers who buy new phones and customers who continue to use old phones, there is also the secondary (resale / refurb) market as a way to reach Apple customers in no other way.
Three to five years from now, will services still be tied to iPhone growth, or separate from hardware installation base? Tim says there are elements today that are not tied to the iPhone, such as products that work with Android or Apple TV. Apple has the strongest hardware portfolio ever, with new products on the way, and has loyal customers and switchers supporting the company. On the market side, there are emerging markets with low penetration, but there has been some reversal in India and Brazil; There are new opportunities with things like augmented reality.
What is the long-term situation in China, given the customs situation and trade and production? Tim says that the vast majority of Apple products are "kind of made everywhere," including content from America, Korea, Japan, China and the EU. That is the nature of a global supply chain, and that will continue to be the case in the future. But Apple is currently investing in a way to continue making Mac Pro in the United States, he suggests, a surprise given that the company reportedly had major problems making the earlier version here.