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Apple Reports Second Quarter Results (apple.com)
55 points by ucha on May 2, 2017 | hide | past | favorite | 66 comments



Big narrative violations:

Mac units up 4% year over year, revenue up 14% year over year. Last quarter it was up 1% and 7%. In contrast Surface revenue was down 26% year over year.

Other products (which include Apple Watch and AirPods) revenue was up 31% year over year. Tim Cook just said on the call that Apple Watch sales doubled year over year.


It is interesting that Apple Watch sales are starting climbing. I have definitely noticed a lot more of them on appearing on wrists during the past 6 months.


I think they may be benefiting from the fitness device trend in a somewhat unexpected way: everyone is getting used to wearing an ugly-looking wrist device, or seeing them on other people, so the fashion barrier is not as steep as it was a couple of years ago. My original thought about the watch was that it was going to need to get smaller and a lot better-looking before it really caught on, but maybe not...


I've witnessed this phenomenon multiple times.

1. Person buys or is gifted a Fitbit because it's inexpensive 2. Person retrains themselves to wear something on their wrist 3. Person is convinced that fitness tracking is beneficial 4. Person is fed up with the low quality of their Fitbit or it has out right fallen apart 5. Person buys an Apple Watch


I have no reason to believe this is going to happen, but I wish Timex would buy Fitbit. FIT's market cap is right around a billion these days, which is affordable for a large, public company.

Fitbit = good software, good product DNA, garbage manufacturing, in need of better distribution.

Timex = great manufacturing, can't make software to save their lives, used to competing in a high-volume, low-margin retail environment


I work for but don't speak for Fitbit.

I bet all the times you witnessed that phenomenon it was a Fitbit Charge HR. The 2016 and 2017 Fitbit trackers (Blaze, Alta, Charge 2, Flex 2, Alta HR) have way fewer issues with manufacturing quality.


I see more watches but still question whether it's 'really caught on'. I don't have a fashion objection but for me the basic functionality of waiting for the face to light up is close to a dealbreaker and the convenience of Apple Pay seems to be moving backward as I'm forced to use my PIN and sign in all sorts of places I used to be able to just wave my phone at.


> the convenience of Apple Pay seems to be moving backward as I'm forced to use my PIN and sign in all sorts of places I used to be able to just wave my phone at.

This is a rant against how you imagine things work, instead of how they actually work. I put my watch on in the morning and it is automatically unlocked the next time I unlock my phone with touch id. From this point on, the pin is never required. Apple Pay is just a double click on the long button, no pin entry as you've imagined if the watch is unlocked, which is true unless you've only just put on the watch.

waiting for the face to light up however, is a legit complaint. It really sucks that there's not even an option for "always on" that you could use while working out, as it's a pain in the ass to be running and want to check your current pace and find that wrist-flick detection failed so you're staring at an off instead of getting the data you wanted and getting back to looking where you're going quickly again.


He's talking about having to enter the PIN for his debit card into the POS keypad.


How can a retailer ask for a PIN number on an Apple Pay transaction? They don't even know what account the money actually comes from, since Apple Pay only gives them a one-time use number for that single transaction. So how can they verify a PIN number in that context?


My experience using Apple Pay with a checking account's debit card at Whole Foods Market and Trader Joe's is that it only saves having to swipe/insert the physical card. I'm still required to enter the pin. Sometimes it gives me the options of "VISA Debit" or "US Debit" which both work the same way. A few times I've gotten lucky and it gives me the option of "Credit" or "Debit" and when I pick "Credit" it's a toss up -- probably driven by the amount of the transaction -- on if the transaction is complete or if I have to "sign" with the stylus on the POS.


Canadian? I'm betting this is a terminology collision—US debit cards use credit-card protocols to talk to banks, while Canadian debit cards ("ATM cards" or "client cards") use their own protocols for POS transactions, which Apple doesn't even bother supporting.

Instead, to support Canadian debit cards directly, Apple would seem to be using the Canadian banks' web payments infrastructure (Interac EasyWeb)—which is effectively a SAML auth flow using your card number + PIN as credentials.

Before this mechanism was introduced, Apple did first support Canadian "Visa debit" cards, though, so earlier Canadian users of the system—who have their phone pointed at a Visa debit card number they have, instead of their debit client-card number directly—might be confused by the assertion that Canadian debit card use on Apple Pay requires a PIN. It doesn't, for them.


Nope -- American.


I have the same experience as @TomSawyer, when a retailer supports NFC payments, but doesn't specifically support Apple Pay, it's hit or miss if it will require a PIN # or not for debit card transactions. For Credit Card transactions it doesn't always require a signature, but it does sometimes.

The retailer doesn't know what account, but the bank DEFINITELY does know.


Compared to using an analogue watch, the Apple Watch is slower. Compared to using a phone as a pocketwatch, I would bet it's slightly faster on average—especially the part after where you have to put your phone _back_ in your pocket.

A product doesn't have to beat the best to succeed; it just has to beat whatever the optimum was in the niche it targets. Which, for "check the time on my phone" people, isn't all that high a bar.


I don't really get it either. I actually like smartwatches, but I own a Pebble Time Steel (recently bought, post-bankruptcy) because it is still the best smartwatch for me. The screen is always on, it does notifications well, fitness tracking is decent, and the battery lasts 7+ days.

But it seems like a lot of people really want the bright colorful screen, even if it makes the device less effective as a watch.


Not sure if thats your opinion as an Apple Watch user, or as someone who hasn't used an Apple Watch at all.

I think its the latter, because the experience (IMO) of "waiting for face to light up" is not at all how you describe.


The magnetic Milanese loop is perfect for taking the sting out of a watch that you need to take off regularly to charge. I can take it off or put it on in around 2 seconds. I've never owned a watch so easy to put on or remove. It's up there with the magsafe (RIP) and detachable cover for the iPad with ease of use. I <3 magnets.


It is not as bad as you think in terms of fashion. I had a lot of people compliment me as I wear my Apple watch with a tan leather suede strap.


The fact that the second revision of the watch is actually bigger than the first makes this all quite surprising.


i guess it makes it more visible. apple products are very expensive and everybody knows that now, not just computery people.


Most mechanical watches are a magnitude more expensive than an Apple watch and tend to be smaller and not flashy at all. If you want to impress others.. don't wear an Apple watch. But if you like it as a watch, go for it!


I agree, I definitely think that is part of it.


The watchOS 3 update was a game changer for the Watch. So much so that it makes me wonder if the dock UI was supposed to be in watchOS 1 and had to be scrapped at the last minute. If you look back at the original watchOS UI it's sort of like using an iOS device without SpringBoard. Everything was there but it was missing a center of gravity to tie everything together.


Same. I think people are starting to figure out what it is and that it's not just a toy for geeks.

I definitely see it much more on women than men.


I see them quite a bit now so they are definitely a smash hit, but I still find that all I ever see people actually do with them is wear them.


Not saying that the new macbook pro is worse than the previous one. But having more sales doesn't have to do with a better product. The brand, network of sellers, marketing and product fit are more important.


None of those things have changed much, compared to last year.


>Big narrative violations:

Could you rephrase that? It's interesting but I don't understand the words you introduce it with (that I just quoted). What does that mean?


Lots of stories in the past year about how the new MacBook Pros are awful and nobody will buy them. That's "the narrative", exaggerated a little, and it doesn't seem to be the case.


My interpretation:

'The narrative' over the last 6 months was that the new Macbook Pro is no longer a 'pro' level device and as a result 'pro' users everywhere are switching to other brands which means bad sales results for Apple. But today's numbers show increased sales instead, so 'the narrative' was flawed.


I didn't see exact numbers or returns for MBPs. Satisfaction is another thing. If alternatives are worse, a purchase is not necessarily from a satisfied customer.


MacStories has nice graphs comparing this quarter to past quarters: https://www.macstories.net/news/apple-q2-2017-results-529-bi...


The Board approved a 10.5% increase to the Apple's quarterly dividend, and has declared a dividend of $0.63 per share of common stock, payable on May 18, 2017 to shareholders of record as of the close of business on May 15, 2017.

Increasing stock buyback by 75 billion as well, showing that Apple believes their stock still has room to grow.


> Increasing stock buyback by 75 billion as well, showing that Apple believes their stock still has room to grow.

Or means that they have nothing else productive to do with their cash.


From the point of view of shareholders, stock buyback is superior to paying dividends taxwise. If shareholders just hold the stock, the price rises, and they don't have to pay any taxes.


Rather, they taxes on it when they sell. Of course, the cost is that you don't have anything in your pocket today. And gains written on paper are just as easy to erase.


AAPL also has a dividend. From the point of view of shareholders, growth is better than dividends or buybacks.


They just have massive cash reserves. They could spend $50bn on R&D for new products, and still have plenty left.


Typically this is not true. When public companies buy their own stock, this is considered a very positive signal. Apple could do most anything they want (including buying most any company) with their cash hoard.


Not necessarily. IBM has had 20 consecutive quarters of declining revenue [1]. They continue to buy back stock, adding $3B to their repurchase program last year. They've bought back stock furiously since 1999 [2]. It's a defensive measure to reduce the share float, and thereby juice EPS.

[1] https://www.bloomberg.com/news/articles/2017-04-18/ibm-misse... [2] https://seekingalpha.com/article/3977909-ibm-bought-155-bill...


It's a good policy to buy back stock whenever you have excess cash flow and the stock is undervalued compared to your other investment options. An example might be your stock has a PE ratio of 8, so it's yielding 12.5% and your other options look to yield 10% or less.

Of course I'm not saying IBM is right, or undervalued. If profits are falling a 12% yield might be a 6% yield before you know it, that's why valuations are more complex than my simplistic example. And many companies do buybacks to juice stock prices for the execs options, regardless of value, so it's not a grant signal.


True... But I'd say IBM is the exception to the rule.


And they chose to buyback stock and pay dividends, which means they think those other uses for their cash are unproductive relative to buying back the stock.


If hold a stock, you pay 0 tax on share buyback gains. Not so for dividends.


It's the exact same rate once you sell.


Sure, but you dictate when you sell and must take the dividend whenever it is offered. It is always easier to plan for something you trigger manually rather than something forced upon you.


At the cost of having none of that money in your pocket until you sell.


…which you could just do immediately if it's that big a deal.

This is not a choice made for retail investors who hold a handful of shares — it won't make a noticeable difference for that class of investor either way. It does, however, make a huge difference for institutional investors and for large shareholders.


Only if you believe that the capital gains rate will not be different when you sell.

Personally, I prefer dividends rather than buybacks from Apple.


Then sell shares in an proportionate amount to the share price increase due to buyback. It's the same either way, you just have the choice of whether to realize those gains now or later.


Capital gains taxes are typically paid when shares are sold and gains are realized.


> Increasing stock buyback by 75 billion as well,

That's a substantial buyback, almost 10% of the company.


Is this below market expectations? It seems that the stock is down 2% in after hours trading.


I've been watching this for years and, frequently, Apple stock value goes down after the company announces it has met or exceeded expectations. I have no idea why this happens.


> I have no idea why this happens.

Buy the rumour, sell the news


Someone told me that market behavior is anticipatory. Makes sense I guess. So everyone must be assuming that because expectations are up now (because of new stuff), that they will be down next quarter (no new stuff coming)?


AAPL just fell to where it was early yesterday. People bought it hoping for blowout numbers and stock going crazy and then sell off when it doesn't happen.


Could it be because of a news[1] that iPhone8 may be delayed until 2018, and they would try to see a iPhone &s that would look like the 7 instead?

[1] https://www.theverge.com/circuitbreaker/2017/5/2/15518898/ap...


In my past personal observations, large amount of AAPL movement has to do with where the prevailing options contracts lie and not with any underlying fundamentals.


After hours trading is often very different than the market the next day. Two percent in after market just means there won't be a very big jump tomorrow.


The announcement and call was simply "mhew..." as expected. Nothing really happening until the next quarter. The drop in after hours again is tiny compared to the run-up in the last three months $AAPL has had.


It is amazing to think about Apple in terms of its size and influence on computing compared to IBM. And that makes me wonder who is going to replace Apple 30 years from now, or if Apple will have a 100+ year run like IBM has. I hope they get a chance to repatriate their cash hoard.


I've thought about this a lot, and here's my .02 on the matter.

If you look at politics now, there's a decidedly anti-elitist trend. This is why Trump got elected. I felt the movie "Hell or High Water" portrayed the ex-Bay Area/other "creative class" cities' zeitgeist really well. There are just a huge number of people struggling to get by, trying to make their mortgage payments, in tons of debt.

At the same time, I find Snap fascinating. Anecdotally, it seems to appeal to young people, people bored working low-end jobs, and others I wouldn't call "rich". And despite the CEO's dumb comments about "a social network for rich people", there's a raw, back-to-basics, "for normal people" feel they've worked hard to cultivate.

I think that if Apple isn't careful, they could be seen as an elitist, out-of-touch, "rich person" phone company. Like, "this is the phone for people who drive E-Class Mercedes. I want a phone for people who drive a truck, drink Miller, and watch football". I could totally see this happening if the Asian Android manufacturers keep nipping at their heels. At some point, phones are going to hit saturation in terms of how much new functionality people care about. And I think there will be a space for a device that's further downmarket, more affordable, and not as aspirational/elitist as an iPhone. It would be a phone that does about 80% of what an iPhone does today, GPS, video calls, camera, good battery life, etc., but without some of the really "gadgety" recent stuff on the iPhone, like 3D touch.

I also think that if computing overall moves to more of a conversational/message-oriented paradigm, it's going to cause the form factor of phones to change a lot, and become more "invisible" in favor of simpler devices, or even a pair of headphones that talk directly to a mobile network.

The other thing to keep in mind, history shows incumbent tech companies aren't "replaced", they're just outgrown by new ones. IBM is _still_ selling mainframes, just not PCs or mobile phones. So the more likely case is, some new thing comes up and has even broader appeal than Apple products. Granted, it's hard to see how that could happen with their sales volumes, but that's what history suggests.


You make some excellent points. I don't have any way to evaluate whether or not class politics will play a role in their future success or lack thereof, I strongly agree that changing form factors and purposes will be interesting. If you imagine a '5G' world where the large swaths of a place are suffused with enough spectrum to essentially create a gigabit network everywhere, can you disintermediate the phone company completely with direct addressed communication channels ? And what will that mean when we are consuming dramas and music directly from the production companies servers with perhaps blockchain micropayments. It will definitely be different :-)


I think it will be interesting, for sure (SV developer here)

I think the class politics thing is a big deal, though. I just read fb interns are now getting paid 8k/month. You certainly can make the argument that they're creating enough value to justify that level of comp but it's not hard to see how this must chafe people, esp. in low-COLA areas. Mix in the fact that Apple has basically made "high-end luxury" their brand, and I think it's inevitable some backlash will result in the next decade. Esp. when you consider that Uber, Airbnb, etc. are all "Silicon Valley" companies.




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