Yesterday, Apple released the results for its 2017 fiscal third quarter (which ran from April 2, 2017 to July 1, 2017) and held a call with analysts to discuss the results. This is typically not a big fiscal quarter for Apple; the important quarter for Apple every year is the first fiscal quarter containing the holiday sales season, and during the fiscal third quarter, most potential Apple customers are waiting to see what new products Apple will introduce in the Fall. Apple reported revenue of $45.4 billion, which is better than the $42.4 billion that Apple saw one year ago (but not as good as the $49.6 billion of two years ago). If you want to get all of the nitty gritty details, you can download the audio of the conference call from iTunes, or you can read a rough transcript of the call prepared by Seeking Alpha. Jason Snell of Six Colors also prepared a transcript. Apple's official press release is here. As always, I'm not as interested in the financial details as I am the statements of Apple executives during the call that are of interest to iPhone and iPad users. Here are the items that stood out to me:
iPhone:
- During the past quarter, Apple sold just over 41 million iPhones. That's up just a tiny bit from the 40.4 million iPhones that Apple sold a year ago, but not as good as Apple's record-breaking 2015 fiscal third quarter when it sold 47.5 million iPhones.
- Apple CEO Tim Cook said that the Plus model of the iPhone was especially popular this past quarter. Although Apple did not release specific numbers on the Plus model, Cook did say that Apple sold "dramatically" more iPhone 7 Plus models this past quarter than it sold iPhone 6s Plus models in the 2016 fiscal third quarter.
- Cook announced that Apple has now sold more than 1.2 billion iPhones. By my math, from June 29, 2007 when the iPhone first went on sale until July 1, 2017, Apple has sold around 1,203,555,000 iPhones. Not a bad run for the first ten years.
- So many folks already have an iPhone, is there room for sales growth over the next few years? Cook thinks so, saying that while he wouldn't make a specific prediction, he does "think that we can grow in both units and market share," especially because of developing markets like China and India.
iPad:
- Apple sold over 11 million iPads in the last fiscal quarter. That's up from the almost 10 million that Apple sold in the 2016 fiscal third quarter.
- The increase in year-to-year sales is noteworthy because it is the first time in three and a half years that iPad sales have started to increase. I think that the best way to see this is to look at a chart that shows the average of four quarters of iPad sales over time. In the following chart, the blue line shows the actual iPad sales each quarter (in millions), and you can see the peaks every year in Apple's fiscal first quarter — the holiday quarter, when folks buy lots of iPads as presents. The green bars show the average of the current quarter and the prior three quarters, which gives you a better sense of iPad sales over time. As this chart shows, the iPad was introduced in 2010 and saw a sharp rise in sales until the end of calendar year 2013 (the beginning of Apple's fiscal year 2014), followed by a decrease in iPad sales over time, and then finally a slight increase in this past quarter. It will be interesting to see over the next few quarters whether this past quarter was just a short-term increase due to the new 10.5" iPad, or whether iPad sales are back on the upswing again.
- By my count, Apple has sold over 370 million iPads from April 3, 2010 to July 1, 2017.
- Apple CFO Luca Maestri cited a report finding that the iPad had a 55% share of the U.S. tablet market in the month of June, the month that Apple introduced the new 10.5" iPad Pro and an updated version of the 12.9" iPad Pro. What else are folks buying? Cheap tablets. If you just look at tablets costing over $200, the iPad had an 89% market share in June.
Other:
- Apple doesn't release specific sales numbers for the Apple Watch, but Cook did say that sales were up 50% in the past quarter, and said that the Apple Watch is the top selling smartwatch in the world by a "very wide margin."
- Cook said that Apple is increasing production of the AirPods to try to catch up with demand, and cited a survey showing 98% customer satisfaction with AirPods.
- Last week, President Trump revealed in an interview with Tripp Mickle and Peter Nicholas of the Wall Street Journal that "Tim Cook has committed to build three big manufacturing plants in the U.S." When asked to comment on that, Cook didn't directly respond, instead simply noting that Apple had directly and indirectly created a lot of jobs in the United States and had plans to do more.
- You can use VPN software on an iOS device to make it appear to the outside world that you are in a different location than you really are. Many iOS users in China have used VPN software to evade China's strict restrictions on what websites can be viewed. But recently, China started to require that all VPN software be licensed — which many believe means that the Chinese government can still spy on what you are doing even if you use VPN, plus can continue to restrict the websites that you access — and this resulted in lots of VPN apps being pulled from Apple's App Store in China. Here is what Cook had to say about that. This is a long quote, but I think it is interesting:
"The central government in China, back in 2015, started tightening the regulations associated with VPN apps, and we have a number of those on our store. Essentially, as a requirement for someone to operate a VPN, they have to have a license from the government there. Earlier this year, they began a renewed effort to enforce that policy, and we were required by the government to remove some of the VPN apps from the App Store that don't meet these new regulations. We understand that those same requirements are on other app stores, and as we checked through that, that is the case.
Today there's actually still hundreds of VPN apps on the App Store, including hundreds by developers that are outside China, and so there continues to be VPN apps available. We would obviously rather not remove the apps, but like we do in other countries, we follow the law wherever we do business. And we strongly believe that participating in markets and bringing benefits to customers is in the best interest of the folks there and in other countries as well. And so we believe in engaging with governments even when we disagree. And in this particular case, now back to commenting on this one, we're hopeful that over time the restrictions that we're seeing are loosened, because innovation really requires freedom to collaborate and communicate, and I know that that is a major focus there. And so, that's sort of what we're seeing from that point of view.
Some folks have tried to link it to the U.S. situation last year, and they're very different. In the case of the U.S., the law in the U.S. supported us. It was very clear. In the case of China, the law is also very clear there. And like we would if the U.S. changed the law here, we'd have to abide by them in both cases. That doesn't mean that we don't state our point of view in the appropriate way; we always do that. And so hopefully that's a little bit, probably more than you wanted to know, but I wanted to tell you."
- When asked to comment on what Apple is doing in the field of autonomous automobiles, Cook replied: "In terms of autonomous systems, what we've said is that we are very focused on autonomous systems from a core technology point of view. We do have a large project going and are making a big investment in this. From our point of view, autonomy is the mother of all AI projects. And the autonomous systems can be used in a variety of ways and a vehicle is only one. But there are many different areas of it and I don't want to go any further with that." It was interesting that Cook volunteered that the autonomous artificial intelligence work that Apple is doing has applications other than self-driving cars.
