QUICK REVIEW: Last week’s Apple Q4 earnings

I just wanted to follow up with a few points from last week’s Apple Q4 earnings report.

See: FOUR THINGS to know ahead of Apple fiscal Q4 earnings: An EPS-less preview

I wrote that Apple would hinge on a few things. Let’s recap:

One) iPhones

While current quarter sales were decent, the outlook for the all important Q1 was decidedly weak. That was also compounded on reports yesterday that the company will scale back production of the Xr (WSJ). That’s bad. Like I said, almost everyone who wants an iPhone (at least in the US) has an iPhone. The company is at the mercy of the upgrade cycle now.
Luckily ASPs bounced back, buying Apple a little more cushion to soft iPhone sales.

As CNBC noted, “Apple’s average selling price was $793, crushing analyst estimates of $750.93.”

See also: Product review-less review of the Apple September 2018 launch

Two) Services

Again, Apple’s future is in services. That’s why the company is now going to start reporting margins instead of unit sales.

The lesson so far? Despite the fancy product rollout events, Apple is now a services company, not a hardware company.

Three) China

China sales held up relatively well, especially compared to other struggling emerging markets like Brazil and Turkey. If this says anything about the Chinese consumer, that’s good news not just for Apple, but for the global economy.

Now if Apple can start increasing market share in China, it’s a new ballgame.

Four) Tariffs and trade

Not much on this out of earnings. However, the company’s 10K (filed November 5th) said,

International trade disputes could result in tariffs and other protectionist measures that could adversely affect the Company’s business. Tariffs could increase the cost of the Company’s products and the components and raw materials that go into making them. These increased costs could adversely impact the gross margin that the Company earns on its products. Tariffs could also make the Company’s products more expensive for customers, which could make the Company’s products less competitive and reduce consumer demand. Countries may also adopt other protectionist measures that could limit the Company’s ability to offer its products and services. Political uncertainty surrounding international trade disputes and protectionist measures could also have a negative effect on consumer confidence and spending, which could adversely affect the Company’s business.

Emphasis mine. Apple investors have mostly shrugged off the tariff impact, but that has the potential to turn into a much bigger problem than softening iPhone sales.

So there it is, a quick recap on Apple earnings. Definitely an interesting story of a company in transition. Stay tuned for more…

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