Apple saw its revenue drop 4% year over year in the first quarter, the company reported Thursday. But revenue and earnings dropped less than analysts had expected, setting off a surge in the share price.
In a conference call with investors and analysts after the financial results had been announced, CEO Tim Cook and CFO Luca Maestri talked about this being the quarter of the “challenging compare,” were upbeat about iPhone sales in China, bragged about the M3 MacBook Air, and fended off questions about the company’s AI plans.
Apple Q2 2024 financial results were fairly dismal
Apple is undeniably going through a rough patch. Revenue dropped in four of its last five quarters — the holiday quarter of 2023 was the sole exception.
But at least the company did better in the most recent January-through-March period than analysts had predicted. They thought Apple’s fiscal Q2 2024 quarterly results would include total revenue of $90.36 billion, down 5% from $94.84 billion in the same quarter of 2023. But instead, the iPhone maker brought in $90.8 billion.
Analysts also thought earnings per share would be $1.50 and net income would be $23.26 billion. Instead, they are $1.53 and $23.64 billion, respectively.
The differences may seem small, but they are enough to set off a rally in Apple stock. It closed up 2.2% on Thursday and is current up another 6.3% in after-hours trading. It’s yet another an example of the curious logic of Wall Street.
Apple executives always stay optimistic about financial results.
“Thanks to very high levels of customer satisfaction and loyalty, our active installed base of devices has reached a new all-time high across all products and all geographic segments, and our business performance drove a new EPS record for the March quarter,” said Luca Maestri, Apple’s chief financial officer. –-Ed Hardy
The quarter of the ‘challenging compare’
Sometimes Apple’s own success is a tough act to follow. On earnings calls, that’s when Cook or Maestri start talking about a “challenging compare” or a “difficult compare” to make weak results look stronger.
For example, this happened when Apple silicon’s grand entrance with M1 MacBook Pro models made the following year’s more-routine M2 interative releases seem a little less like a smash hit.
And on Thursday’s call about a lackluster quarter, Cook and Maestri used those phrases a whole bunch of times. They came up for revenue regarding iPhone (down 10%), iPad (down 17%), and wearables, home and accessories (down 10%).
For iPhone, Cook referred to analysts to what Apple said on last year’s March-quarter call, reminding them of a massive financial boon then that colors this quarter’s results negatively.
“We were able to replenish iPhone channel inventory and fulfill significant pent-up demand from the December quarter COVID related supply disruptions on the iPhone 14 Pro and 14 Pro Max,” he explained. “We estimate this one time impact added close to $5 billion to the March quarter revenue last year. If we removed this from last year’s results, our March quarter total company revenue this year would have grown.”
Another difficult compare came up to assuage fears over iPad’s soft numbers, too.
“Revenue for the March quarter was $5.6 billion, 17% lower year-over-year, due to a difficult compare with the momentum following the launch of iPad Pro and the 10th generation iPad last fiscal year,” Cook said.
Wearables like Apple Watch and other accessories got a little “tough compare” love, too.
“Wearables, home and accessories March quarter revenue was down 10% from a year ago due to a difficult launch compare on [Apple] Watch and AirPods,” Cook said.
Maestri picked up on that by bringing up AirPods and Apple Watch SE, again with some positive spin.
“Last year we had the continued benefit from the launches of the AirPods Pro (2nd generation) and Apple Watch SE,” he said. –David Snow
M3 MacBook Air helps boost Mac revenue growth
A rare bright spot on Thursday’s earnings call came with news of Mac’s $7.5 billion in revenue, up 4% year-over-year. And Cook and Maestri made the most of it, emphasizing the popular M3 MacBook Air models.
“We had an amazing launch in early March with the new 13- and 15-inch MacBook Air. The world’s most popular laptop is the best consumer laptop for AI with breakthrough performance of the M3 chip and an even more powerful Neural Engine,” Cook enthused.
“Whether it’s an entrepreneur starting a new business, or a college students finishing their degree, users depend on the power and portability of MacBook Air to take them places they couldn’t have gone without it,” he added.
Maestri later underlined the artificial intelligence angle — though it’s a bit of a mystery what they mean, with no details mentioned — and added some supportive spin on Macs’ install base and customer-satisfaction ratings.
“Customers are loving the incredible AI performance of the latest MacBook Air and MacBook Pro models,” Maestri said. “And our Mac install base reached an all-time high with half of our Macbook Air buyers during the quarter being new to Mac.” –David Snow
iPhone growth in China
China is the source of 18% of Apple’s revenue last quarter, down a hair from the same quarter a year ago. And despite unconfirmed reports of weak iPhone sales in China, Apple’s CEO said iOS was actually a bright spot for the company.
“According to Kantar during the quarter, the two best selling smartphones in urban China were the iPhone 15 and iPhone 15 Pro Max,” said Cook during Thursday’s call. And he said iPhone sales grew in the country.
But an overall revenue drop coming from China means Mac, iPad and other products brought in less revenue. “The other products didn’t fare as well and so we clearly have work there to do,” said the executive.
Analysts watch how the company in China closely — it’s a huge potential market, but there are always concerns that customers will get fickle or there could be a government crackdown. –-Ed Hardy
Apple Vision Pro is gaining traction with enterprise customers
Apple Vision Pro, the headset that launched earlier this year to great excitement but quickly faded, faces a strong future in an unexpected sector: enterprise computing.
While Apple initially pitched the headset as the “ultimate entertainment device,” big businesses are buying up the mixed-reality headsets and putting them to novel use, Apple execs said Thursday.
“Since the launch of Vision Pro last quarter, many leading enterprise customers have been investing in this amazing new product to bring spatial computing apps and experiences to life,” said Maestri. “We are seeing so many compelling use cases, from aircraft engine maintenance training at KLM Airlines to real-time team collaboration for racing a Porsche, to immersive kitchen design on Lowe’s. We couldn’t be more excited about the spatial computing opportunity in enterprise.”
It’s not like the emphasis on capturing enterprise customers is particularly new. Apple previously proved keen to point out how Vision Pro can benefit businesses. (Apple tried this same sort of business-oriented gambit when the Mac launched.)
But the high-end hardware of Apple’s headset might actually be capturing the attention of C-suite executives. Earlier in the call, Cook served up a surprising stat about the headset, which some view as the future of computing.
“More than half of the Fortune 100 companies have already bought Apple Vision Pro units, and are exploring innovative ways to use it to do things that weren’t possible before,” Cook said. “And this is just the beginning.” — Lewis Wallace
Apple loves you, and you love Apple
The world is filled with Apple fans, and there are more of us every day. Bottom line: That’s good for business.
“Thanks to our unparalleled customer satisfaction and loyalty, and a high number of customers who are new to our products, our installed base of active devices reached an all-time high across all products and all geographic segments,” Maestri said.
And Cook provided anecdotal evidence of the worldwide Apple lovefest, citing his recent trips to Asia.
“Everywhere I travel, people have such a great affinity for Apple, and it’s one of the many reasons I’m so optimistic about the future,” he said.
What’s the key to Apple’s ongoing success?
“As we push innovation forward, we continue to manage thoughtfully and deliberately through an uneven macroeconomic environment and remain focused on putting our users at the center of everything we do,” Cook said. — Lewis Wallace
Still staying vague about AI
Apple has been criticized for not doing more with artificial intelligence. Rivals Microsoft, Google and Samsung have made big AI-related moves, while the iPhone-maker has not. Analysts on Thursday’s call wanted more, and the Apple executives tried to reassure them while also saving specific announcements for upcoming events.
“I don’t want to get in front of our announcements, obviously, I would just say that we see generative AI as a very key opportunity across our products,” said Cook. “And we believe that we have advantages that set us apart there. And so and we’ll be talking more about it and as we go through the weeks ahead.
Expect to hear details about AI in iPhone, Mac and iPad at WWDC24 in June. And possibly at the May 7 iPad event.–Ed Hardy
