Apple managed to shock Wall Street today by beating its own expectations for Q1 2017, the most profitable quarter in the company’s history.
There was good news all around as iPhone sales, services and even the Mac all performed better than predicted. During today’s earnings call, Tim Cook and Apple CFO Luca Maestri revealed some of the secret sauce that made Apple’s earnings one for the history books.
Here are the top takeaways from today’s call.
‘Peak iPhone’ was a myth
Apple topped its own goals for iPhone sales in Q1 2017, with 78.3 million units sold. That marks a 5 percent increase from the same quarter last year, proving that Apple’s moneymaking machine still has room to grow (especially if this year’s iPhone 8 is as revolutionary as expected).
Cook told investors today that he still views the smartphone market as being in the “early innings.” As people become more and more attached to their iPhones, Apple is set to take a bigger chunk of the pie — and make huge money off services, too.
Services are yuuuuge!
“Services” just doesn’t sound sexy. But maybe that conspicuously big pile of money brought in by Apple’s services might make you rethink things a little. Apple raked in $7.2 billion in revenue from services last quarter, including $3 billion in App Store purchases in December alone — the biggest month ever. Apple Pay users tripled in the past year, with transaction value increasing 500 percent.
Selling apps, music, movies, iCloud storage and AppleCare has now become Apple’s second-largest moneymaker. In fact, Apple expects revenue from services to swell to the size of a Fortune 100 company by the end of the year. Still, the company said it plans to double its services business over the next four years, leveraging the vaunted Apple ecosystem to power the expansion.
The crazy thing about Apple’s services business is how the company isn’t even trying to milk it for all it’s worth yet. Most of the money comes from the App Store. Apple Music is also becoming more popular, as is iCloud storage. As long as Apple can keep its user base growing with hardware sales, it should have no problem reaching its goal to double in size.
The Mac is killing it
The Mac lineup brought in more revenue than ever before last quarter, with 5.3 million units sold. The new MacBook Pro with Touch Bar is mostly to thank for the boost: Pre-orders for the new machine broke previous records, and its higher price tag meant Apple didn’t have to sell as many units to keep revenue up.
Unprecedented demand for Apple Watch and other products
Apple could barely keep up with demand for several of its products last quarter. It’s a weird problem to have. Most companies would die for such a situation.
Last quarter was the best ever for Apple Watch — demand was so strong, Cook said, that Apple simply couldn’t make enough. (Apple still won’t say how many units it sold, though.) But that wasn’t the only product that proved difficult for potential buyers to get their hands on: Apple cited the MacBook Pro with Touch Bar, the wildly popular iPhone 7 Plus and the still virtually unobtainable AirPods wireless headphones as examples of demand outstripping supply.
iPad is down but not out
And then there’s the beleaguered iPad. Overall iPad sales dropped nearly 20 percent year-over-year, but Cook said he’s still highly optimistic about the devices’ future. Citing stunningly high customer satisfaction numbers and new features coming, Cook said he thinks the iPad will recover.
“We have some exciting things coming on iPad. I still feel very optimistic about where we can take the product,” he said. “The customer satisfaction numbers are through the roof at 99 percent. I see a lot of good things and hope for better results. We are still currently in a shortage issue now and we’re not projecting to get out of that totally during the next quarter…. I’m very bullish on iPad.”
HomeKit gets some love
During the call, Cook waxed rhapsodic about all the ways he uses HomeKit to enhance his daily routine. From saying, “Good morning, Siri” to get the coffee started to having his smart garage door open as he rolls up in his car, it was a surprisingly personal account of how HomeKit-compatible devices make life simpler.
It’s good to hear HomeKit getting some time in the spotlight. While the platform got introduced at the 2014 Worldwide Developers Conference as part of Apple’s sweeping plan to expand into more and more segments of our lives, the rollout of HomeKit devices has been painfully slow. In the meantime, Amazon’s Echo smart speakers have taken off and become a very real threat to Apple’s hold on the smart home.
We know Apple is ramping up its Siri efforts, including bringing SiriKit to Apple Watch. Cook’s emphasis on HomeKit’s security, and the usefulness of his favorite AI assistant when it comes to home automation, means Apple isn’t going to give up without a fight. (The growing wave of HomeKit-compatible devices is also reassuring.)
loves hates litigation
Apple’s lawsuits with Samsung have been headline news for years, but the company is starting a new beef with another tech rival, Qualcomm. Even though Cook told investors that he doesn’t like litigation, he explained that the new case against Qualcomm was a last resort.
“You should take from our filing that we didn’t see another way forward. They were insisting on charging royalties on technologies they had nothing to do with,” he said. “It’s like buying a sofa and you charge someone a different price depending on the size of house it goes to. From our point of view, this doesn’t make sense and won’t pass muster in the courts.”
Cook said if another way to solve the issue arose, that would be great. But at this point, he fully expects the lawsuit to take some time.
India invasion coming soon
China used to be Apple’s favorite new market, but it’s looking like India could soon supplant Greater China. Cook explained that the strong U.S. dollar hurt revenues in both China and India, but the economic headwinds may be about to change.
“Despite the demonetization move in India that created lots of economic pressure there last quarter, despite that we had all-time record revenue results,” Cook said. “So we were very happy about that. I feel really good about how we’re doing [in India]. It’s a great place to be.”
The Trump effect
President Donald Trump has made no secret about wanting to help companies like Apple bring their massive overseas cash piles back to the USA. Cook says he thinks it’s a good idea.
Asked whether tax reform would have an effect on Apple’s acquisitions, Cook explained that it would be very good for the country and good for Apple.
And how would Apple spend all that repatriated billions? “What we’re gonna do with it, let’s wait and see what it is,” Cook said. “We’re always looking for acquisitions. We look for companies of all sizes. There’s not a size that we would not do based on the size of it.”
Original content is maybe not so hot
Everyone keeps waiting for Apple to officially take on Netflix and HBO, but Cook didn’t seem too confident that Apple will plunge ahead with original programming by making dozens of new TV shows and movies on its own.
“We have put our toes in the water doing some original content with Apple Music,” said Cook “That will roll out through the year and we’re learning from that. We are thinking about ways that we can play it.”
Additional reporting by Lewis Wallace. This post was originally published at 4:07 p.m. on Jan. 31, 2017.