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I\u2019ve been covering Apple financial results and earnings calls for a very long time, dating back to my time at Macworld when Steve Jobs would occasionally parachute into earnings calls presided over by, among other people, Tim Cook! This week\u2019s earnings call<\/a> was Cook\u2019s 90th and final installment, and that\u2019s probably the most notable thing about it.<\/p>\n Even the fact that it was a record third quarter<\/a> isn\u2019t that notable. It\u2019s more notable when Apple doesn\u2019t<\/em> set a quarterly record, especially given economic changes and inflation.<\/p>\n Still, as always, the results and the earnings call provided a few things I thought were worth pointing out. And so, powered by my second cup of tea while I\u2019m on a summer trip to visit family (that was a late-night flight!), here are some thoughts about financial things.<\/p>\n Apple is having supply-constraint problems. Maybe you\u2019ve noticed the lack of new Mac minis and Mac studios? The Mac is the hardest-hit product line when it comes to supply, but Cook said the iPhone has also been affected, and anticipates constraints on the iPad as well.<\/p>\n This isn\u2019t the whole story, of course, but it is part of it\u2014and a part that Apple wants to crow about. Apple is limited in how many Macs, iPhones, and iPads it can sell because they are all powered by systems-on-chips that are coming off of chipmaker Taiwan Semiconductor\u2019s most advanced production nodes. Here\u2019s how Cook put it:<\/p>\n \n The root cause of it is not a regular supply issue. It\u2019s a demand forecast issue, to be candid, where the iPhone and the Mac are both doing remarkably better than we thought they would do. And we had high expectations, so it wasn\u2019t that our expectations were low, but as you can see from iPhone\u2019s growth being 22% and Mac\u2019s growth at 29%\u2026 these are extraordinary numbers and the supply chain just has less flexibility in it than normal. So we\u2019ve been pulling supply ahead, and at some point there\u2019s a limit to that. And so we\u2019ve got a quarter that we\u2019re going to be scrambling on the supply side, essentially.<\/p>\n This isn\u2019t a partner or supplier issue. This issue is an incredibly strong\u2026 iPhone and Mac product cycle that has really yielded a demand beyond our expectation.\n<\/p>\n<\/blockquote>\n You can\u2019t argue with the strong iPhone and Mac sales figures, and Apple specifically called out the MacBook Pro and the MacBook Neo, which Cook said \u201chas been especially popular\u201d and suggested that the company is still struggling to make them fast enough.<\/p>\n It\u2019s admirable (and sensible) that Cook isn\u2019t pointing fingers at anyone but customers who want Apple products, but the key phrase in his statement is \u201cthe supply chain just has less flexibility in it than normal.\u201d This is an acknowledgement that while in the past, Apple might have been able to boost chip production from its partners, today the chip industry is maxed out thanks to the wild building of chips for AI applications.<\/p>\n Still, I do take Cook at his word: Even in a normal world, there\u2019s only so much TSMC could do to rapidly respond to a dramatic increase in chip orders from Apple. I\u2019m sure Apple is kicking itself for not anticipating stronger demand, especially given how tight the whole industry has gotten. And Cook\u2019s suggestion that Apple is going to be \u201cscrambling on the supply side\u201d because the impact will \u201cincrease significantly<\/em>\u201d (and Cook really emphasized that word!) suggests that this may get worse before it gets better.<\/p>\n Oh yeah, and this isn\u2019t just about cutting-edge SOCs. It goes for memory too. According to Cook, the price Apple pays for memory just keeps going up, and the offsetting Apple has been able to do by using existing inventory is going to be less effective as supplies run out.<\/p>\n As an aside, Cook also alluded to reports that Apple has tried to get the U.S. government to authorize purchase of RAM from some forbidden Chinese chipmakers, which has aroused political ire<\/a>. \u201cObviously if there were more suppliers, that would be good, and it would help us on the supply side and perhaps the pricing side.\u201d<\/p>\n One of the analysts on the earnings call asked a question about Apple\u2019s recent price increases, which was a great opportunity for Cook to explain Apple\u2019s pricing philosophy.<\/p>\n It started out pretty normal, with Cook pointing out the price increases were done \u201creluctantly\u201d and only because it\u2019s \u201ca hundred-year flood on the memory pricing.\u201d But then it got more philosophical:<\/p>\n \n In terms of our philosophy on dollars or percentages, we look at units, revenue, and margin, and then come to a business judgment as to how to handle that. And so it\u2019s not a mathematical formula that gets us to a specific result or just looking at one dimension of that. We look at all three dimensions and think about it over the long term instead of a 90-day clock. Hopefully that helps.\n<\/p>\n<\/blockquote>\n Yep, that helps, Tim. Three-dimensional pricing. Imagine pricing as a cube, and you\u2019ll finally see the Matrix.<\/p>\n Services revenue, while up year-over-year, was (shockingly?) not up sequentially for the first time in more than three years. Apple laid most of the blame at various foreign-exchange rate \u201cheadwinds,\u201d but CFO Kevan Parekh also tried to blame the softness on a few other factors:<\/p>\n It felt like a real stretch, and more of an opportunity to complain about the App Store being regulated and litigated. But I will admit that a softening in mobile gaming, which obviously drives a lot of App Store revenue, is an interesting data point. And it\u2019s more interesting that Apple felt it was worth sharing.<\/p>\n But, Parekh went on to say, \u201cDespite this, the App Store did set a June quarter revenue record.\u201d So\u2026 maybe not the reason for the softness after all?<\/p>\n Did you know that Steven Spielberg just won a Grammy award, which made him an EGOT<\/a>? Winning an Emmy, Grammy, Oscar, and Tony is a pretty rare accomplishment that any individual should be proud of.<\/p>\n But did you know that large corporations are also keeping score? It\u2019s true.<\/p>\n \u201cIt was wonderful to see Apple TV earn the industry\u2019s top honors, adding Tony Awards this year to its Emmy, Grammy, and Oscar wins,\u201d Cook said Thursday. \u201cWe reached that milestone faster than any streamer in history.\u201d<\/p>\n I wonder which marketing person at Apple had the job of figuring out how quickly every other streamer became an EGOT. Also, thanks to cancelled series \u201cSchmigadoon\u201d<\/a> for the Tony. Maybe do everyone a solid and bring it back<\/a>?<\/p>\n Through the earnings call, financial analysts showed their softer side by thanking Cook for all his years of service and revenue generation. Cook made a point of thanking them all individually before answering their questions, which I thought was a nice, and human, touch. He also made a final farewell statement designed to warm Wall Street hearts:<\/p>\n \n Thank you to all of you, from our shareholders, particularly our long-term shareholders who have put their trust in us for so many years, to the analysts who have followed our company so closely. As you know, this will be my final earnings call, and John will lead these calls going forward. The transition is going seamlessly, and I am beyond excited for John to step into his new role and lead Apple into its next era. He is truly one of a kind and there is no better person to take the helm of the company.\n<\/p>\n<\/blockquote>\n Oh! The new guy! I didn\u2019t even mention it, but John Ternus was on the call the entire time, and didn\u2019t say a peep. At least, not until Wamsi Mohan of Bank of America decided to devote one of his two questions to him. He threw him a softball about how the competitive landscape is changing overall.<\/p>\n Ternus did not pick up the ball.<\/p>\n \u201cWell, thank you for asking,\u201d Ternus said, rousing from his call-long slumber. \u201cI guess I would just reiterate what Tim said, there is so much opportunity for us with everything that\u2019s happening in this space, and we\u2019re just really focused on our plans and very excited about it.\u201d<\/p>\n Deferring to the big guy and not letting Wamsi Mohan bait you into stealing Cook\u2019s moment. That\u2019s future CEO thinking right there, pal.<\/p>\nIt\u2019s not a chip shortage, it\u2019s demand<\/h2>\n
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How does Apple increase prices?<\/h2>\n
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Soft Services stories<\/h2>\n
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Apple is an EGOT<\/h2>\n
This was Tim<\/h2>\n
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