8 key details from Apple’s upbeat earnings report

By

Big pile of cash underneath an Apple logo.
Apple's giant pile of cash continues to grow.
Image: Ste Smith/Cult of Mac

Apple unleashed its best-ever Q3 earnings report today, and traders subsequently sent the company’s stock soaring in after-hours trading.

Thanks to record-breaking revenue from its services business and strong growth from wearables, Apple is heading into its most important period of the year ready to cash in. Investors had plenty of questions for CEO Tim Cook and CFO Luca Maestri during today’s call. And the duo revealed some key tidbits we actually weren’t expecting.

iPhone is no longer king

Apple is finally less-dependent on iPhone sales
Apple is finally less-dependent on iPhone sales.
Photo: Ed Hardy/Cult of Mac

For the first time since Q4 2012, the iPhone makes up less than half of Apple’s revenues. Wearables are the company’s fastest-growing product category, with AirPods and Apple Watch surging in popularity. Services are booming, too. Together, the two categories are approaching the size of a Fortune 50 company, Cook said during Tuesday’s call.

All of those categories remain dependent on the iPhone’s popularity, though. Apple could find itself in a tough spot for growth once those markets become more saturated. That, in turn, would make other projects like health care, augmented reality and self-driving cars even more important.

Cook says the company is working on some services that aren’t hooked to Apple products, but most of them are aimed at the active install base.

Wearables are an unsung hero

We're ready for new AirPods
We’re ready for new AirPods.
Photo: Ste Smith/Cult of Mac

Apple’s wearables business is now bigger than 60% of the companies in the Fortune 500, Cook said. Last quarter, Apple made more money off wearables than it did the iPad or Mac. Services and iPhone are the only product categories bigger than wearables now. Analysts seriously underestimated the upside of Apple’s wearables. AirPods are the new iPod, and everyone is lusting after Apple Watch, too. Last quarter, 75% of Apple Watch buyers were first-time buyers while 25% were upgrading from an old model.

Apple’s China problem is overrated

Tim Cook says China is Apple's future
Tim Cook says China is Apple’s future.
Photo: Tim Cook/Weibo

We’ve been hearing all year that Apple faces big problems in China, but that doesn’t look to be true.

Cook went in hard during today’s earnings call to assure investors that business is bouncing back in the country. Apple’s revenue in mainland China grew year-over-year. And the iPhone installed base rose year-over-year in China. And Apple saw double-digit services revenue growth in the country.

Apple took some pricing action to help sales, and initiated some trade-in and financing programs. Cook said the company is also seeing a broader engagement with the Apple ecosystem. Every product category improved sequentially in mainland China, leading Cook to say things are looking “quite positive” going forward.

Mac Pro could make an American comeback

Tim Cook's comments on U.S. Mac Pro production were shocking
Tim Cook’s comments on Mac Pro production were shocking.
Photo: Apple

In a shocking moment during today’s call, Cook said Apple might keep Mac Pro production in the United States after all. The company recently applied to have some parts excluded from President Donald Trump’s tariffs. Trump quickly fired back on Twitter that Apple should make the Mac Pro in the USA or no deal. Cook told investors the company is looking into it.

“In terms of the exclusion, we’ve been making the Mac Pro in the U.S. We want to continue doing that,” Cook said. “And so we’re working and investing currently in capacity to do so because we want to continue to be here.”

It’s unclear how much of production would be moved to the United States. The Apple CEO didn’t elaborate on what moves the company is making, but it might eventually decide to assemble the Mac Pro stateside, though many of the parts still would need to be sourced from China. Time is running out to lock in those details, though, as Apple told developers during WWDC 2019 that the Mac Pro will launch by the end of the year.

Apple Card is coming in August

Apple Card will arrive in August
Apple Card will arrive in August.
Photo: Apple

Cook also revealed that Apple Card will launch in August. The news came on the heels of a report last week that claimed Apple’s credit card would arrive in a few weeks.

Cupertino unveiled the Apple Card during an event in March. Thousands of Apple retail employees reportedly have been beta testing it over the last month. Some analysts expected the card to land alongside iOS 12.4, but an official launch date hasn’t been given.

Services will get revenue boost in 2020

Apple TV+ is on on the way.
Apple TV+ is on on the way.
Photo: Apple

With Apple Card launching next month and Apple TV+ and Apple Arcade coming in the fall, Wall Street wants to know when it will see Apple’s huge investment in new services start to pay off. Apple CFO Luca Maestri warned that the new services won’t be huge moneymakers right at launch.

During the call, Maestri revealed that there will be free trial periods for the new services. He didn’t explain how long those trial periods will last. However, investors won’t see growth from them for a couple of months after their fall launches.

“The road to monetization takes some time,” said Maestri. “All of them will help us with growth rates as we head into next year.”

Apple R&D is at an all-time high

Apple has some exciting projects in the works
Apple has some exciting projects in the works.
Photo: Duncan Sinfield

Investors are always trying to get some small glimpse of Apple’s product road map during the Q&A section of the earnings call. And every time, Cook shuts them down. This time, he said Apple has exciting new products ready to come out for the rest of the calendar year. He said Apple has been making big bets in augmented reality. We also know the company has a self-driving car project in the works.

If you need more evidence that Apple is cooking up something exciting, though, check out its R&D spending. The company spent $4.3 billion on R&D last quarter. That’s more than it spent in 2010 and 2011 combined.

Q4 2019 guidance is kinda ‘meh’

The iPhone XI probably won't cause a surge in sales.
The iPhone XI probably won’t cause a surge in sales
Photo: Ian Fuchs/Cult of Mac

Apple’s revenue guidance for next quarter seems pretty ho-hum. The company predicts between $61 billion and $64 billion in revenue for Q4 2019. During last year’s fourth quarter, the company generated $62.9 billion in revenue, so Apple is expecting modest growth. With the 2019 iPhone slated to launch at the very end of Q4, some investors hoped Apple’s guidance would prove more optimistic, signaling a surge of upgrades. Instead, Apple said it expects to see the strongest growth from non-iPhone categories next quarter.