While Apple’s earnings report gives details on where the rubber meets the road, it’s the conference call where the real nuggets of information are to be found. Here are seven things we now know about Apple:
See also: Macs are up to $543 cheaper than PCs, claims IBM
#1: iPhone 7 Plus handsets could be supply limited throughout the next quarter
In a question on whether iPhone supply would meet demand by the end of this quarter, CEO Tim Cook had this to say:
“It’s hard to say. I believe that on iPhone 7 we will. On iPhone 7 Plus, I’m not sure.”
This is quite a critical question for Apple because limited supply of Plus handsets puts a downward pressure on the average selling price, and, in turn, the revenue that Apple pulls in from the iPhone. It could also push people to buy something like a Galaxy S7 Edge or a Pixel XL.
And it can have a long-term effect — sell someone a cheaper iPhone now because you don’t have the more expensive one in stock, and you might not get a chance to sell them another iPhone for several years.
#2: Apple’s not in the best of positions to take advantage of the Samsung Galaxy Note 7 fiasco
In a question about “Samsung being in complete disarray” following the Note 7 recall, Apple CFO Luca Maestri had this to say:
“… we are supply constrained on 7 and 7 Plus. And so when you talk about other competitors, it’s not particularly relevant to us right now because we are selling everything that we can produce.”
That’s a roundabout way of saying that Apple is selling iPhones as fast as it can make them, but it also means the company could be selling more. And people who have had to return their combustible Note 7 handsets aren’t going to be in a position where they can wait weeks for a replacement.
Bottom line, Apple is losing out on being able to grab disillusioned Android users.
#3: Apple is still betting that people want their virtual assistants on their smartphones
In response to a question about home assistants such as Amazon Echo, Tim Cook had this to say:
“I think that most people would like an assistant with them all the time. And we live in a mobile society. People are constantly moving from home to work and to other things that they may be doing. And so the advantage of having an assistant on your phone is it’s with you all the time.”
So Echo/Dot/etc = niche, smartphone = mainstream.
#4: It’s down to supply, not demand
When asked about iPhone demand in China, Tim Cook had this to say:
“It’s very hard to gauge demand, as you know, when you’re selling everything you’re making. And so we’ll find out more through the quarter, but we’re confident enough to give you guys guidance that we’re returning to growth this quarter, which obviously feels very good for us.”
So, the stage has been set for how the next quarter will play out. Apple is predicting that the iPhone will return to growth this quarter, but if it’s not all that spectacular, it will be supply that’s to blame, not demand.
#5: Apple failed to answer the “where do you want to be in three to five years?” question, and failed spectacularly
Apple was asked about its “grand strategy” and whether it knew what it wants “to do over the next three to maybe five years?” Tim Cook offered some terse answers:
“We have the strongest pipeline that we’ve ever had and we’re really confident about the things in it. But as usual, we’re not going to talk about what’s ahead.”
“We have a strong sense of where things go and we’re very agile to shift as we need to.”
This comes down to a theory by Harvard Business School Professor Clayton Christensen that companies succeed by offering consumers the things they need to get “the job to be done,” and that Apple isn’t pulling this off successfully as of late (hence weak sales of products such as the iPad and Apple Watch)
Jim Edwards over on Business Insider has more on this topic, and I encourage you to read his article.
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#6: India is fast becoming the new China
It’s clear that Tim Cook is eyeing India:
“The smartphone has not done as well in India in general. However, one of the key reasons for that is the infrastructure hasn’t been there. But this year or this year and next year, there are enormous investments going in on 4G and we couldn’t be more excited…”
He then went on to say:
“Will it be as big as China? I think it’s clear that the population of India will exceed China sometime in probably the next decade or so, maybe less than that. I think it will take longer for the GDP to rival it, but that’s not critical for us to have a great success there.”
#7: Apple is coy about where all that R&D money is going
When asked about R&D spending doubling over the past three years, outpacing sales growth, Tim Cook had this to say:
“There’s clearly some amount of R&D that are on products that today are in the development phase that have not reached the market, and so that’s a part of it. And we feel really great about the things that we’ve got. We’ve also put a lot of emphasis on our Services business as well and on making the ecosystem even better. And so we’re very much, we’re confidently investing in the future, and that’s the reason you see the R&D spend increasing.”
Here it seemed there was a deflection away from thinking that R&D spending has to equal products and a shift to clarifying how R&D money is also needed to fund services and for expensing the ecosystem.
All transcript quotes from Seeking Alpha.
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