Apple Q3 FY2022 Earnings

A well-managed company

Let’s go over the headline numbers first. Apple had a record Q3 result with almost $83 billion in revenue, a 2% YoY increase on the back of a 36% growth last year. The 1% decline in product revenue was more than offset by the 12% growth in Services, which hit almost $20 billion in sales. The company’s gross margin profile this quarter stayed relatively similar to the historical trends: 36% for Products, 71% for Services and 43% for the whole company. Operating margin was 28%, down 200 basis points YoY, while net margin dropped to 23% from 27% in Q3 last year.

Figure 1 – Apple’s revenue and YoY growth

Make no mistakes: this was a tough quarter. All companies had to deal with significant challenges such as the new variant of Covid-19, unfavorable foreign exchange headwind, supply chain constraints, the war in Ukraine and macroeconomic concerns across the globe. Big retailers like Walmart or Target reported higher expenses and lower profit guidance. Meta had the first revenue decline in history while incurring more operational expenses. Even the great Amazon saw a 4% decline in revenue from their famous eCommerce segment.

Figure 2 – Product, Service & Overall Gross Margin

Yet, we see Apple increase their top line, albeit modestly. Unfavorable foreign exchange rates were estimated to have a 300 basis point impact. Otherwise, the revenue growth would have been higher. On the other side of the equation, Apple stayed disciplined with their costs. Gross margin was relatively intact while the operating expenses (R&D and SG&A) were under controlled and rose only modestly. We all know how hard it is personally to stay disciplined with living expenses when disposable income grows. Hence, given the balance sheet that Apple has, they deserve praise for not wasting shareholders’ money on unnecessary acquisitions or ludicrous ventures.

For the next quarter, the company expected a 600 basis point impact from foreign exchange, better-than-this-quarter supply chain status and an acceleration in revenue growth. The positive note on revenue forecast is dire contrast with a somber tone from other companies, especially when we take into the size of Apple and the breadth of its operations across the world. Apple used to be a design firm known for the willingness to spend on products and services regardless of the cost. Tim Cook took over and steered the company towards a financially and operationally disciplined entity. It pays off handsomely.

iPhone and the resilient brand

Commentary from the management detailed how strong customer loyalty was towards the Apple brand. iPhone customer satisfaction stood at 98% and there were record switchers from other operating systems to iOS. Installed base for Mac, iPad and Wearables all reached a new all-time high. Over half of the new customers in the quarter were new to these products.

Apple products don’t exactly fall into the necessity category due to their high prices. As inflation hits consumers hard every country and supply chain issues still wreck multiple industries, it’s nothing short of impressive to see a 3% YoY increase in iPhone sales. That is robust proof of how dominant and what a great brand iPhone is. And we all know that once a consumer enters the Apple ecosystem, they are likely to buy more products and services. Therefore, investors can be more confident in the strength of Apple’s business amidst economic downturns, but there is NO guarantee that will happen.

Figure 3 – Apple Business Segments’ YoY Growth

Greater China

China still made up 18% of the total company, pretty much in line with the historical figures for Q3. According to Apple, China’s Services revenue grew faster than the company average of 24% and hit an all-time June quarter record. The growth in Services revenue was offset by the lower demand of products in China, due to the lockdown, albeit a push late in June. China’s operating margin dropped from 43% to 38%. Because Services, which has a higher margin, grew this quarter, the drop in operating margin is likely attributed to higher SG&A. Traditionally, Q4 is the weakest quarter for China, both in revenue and operating margin. I expect the revenue share and operating margin to drop to 17% and 34% respectively. It’d be great to have an analyst ask the management for more color on China in Q4.

Figure 4 – Apple’s Revenue broken down by geographic areas
Figure 5 – Geographic areas’ operating margin

Services

Per Apple:

Our Services set a June quarter revenue record of $19.6 billion, up 12% over a year ago, with all-time revenue records in the Americas and the rest of Asia Pacific and June quarter records in Europe and Greater China. We also achieved June quarter revenue records in each major Services category, including all-time revenue records for Music, Cloud Services, Apple Care, and Payment Services.

Source: Fool.com

Where are the critics of Apple’s growing Services? The pivot to Services a few years ago raised eyebrows, but eventually proved extremely fruitful and important to Apple. Not only does Services make customer experience on Apple’s devices better, but it also aids the company’s profitability with 70% gross margin. Since 2019, Services is the only part of the business that has had no down quarter and as of this quarter, made up 24% of the company’s top line. For reference, in terms of 4-quarter rolling average revenue, Apple’s Services is already bigger than Amazon’s AWS.

The number of paid subscriptions rose steadily every quarter over the past 4 years and hit the 860-million mark. At this rate, we’ll cross the 1-billion mark in the next 12 months. As the paid subscription population is highly correlated with Services revenue, the more subscriptions there are, the higher Services revenue grows.

Figure 6 – Apple’s paid subscription and Services revenue

Additionally, Apple’s commentary on the drivers of Services is very interesting. Apparently, the major contributors are Cloud, Apple Care, Payment Services and Music. The first three have high margin and are like to grow since they are sticky and central to user experience with Apple devices. How many use an iPhone without iCloud and Apple Pay? When, not if, this trend continues, it will do wonders to the gross margin of Services and the company.

One notable absence is ads. It’s understandable that this quarter saw some softness when the likes of Snap, Facebook or Google all reported slower growth than expected. But once this current economic environment subsides, ads will be a great lever to pull. Formerly limited to the Search tab on the App Store, Apple Ads was recently expanded ads to Today’s tab. More ads slots mean more revenue for Apple. These dollars also have high margin and don’t

Apple Q2 FY2022 Results

On Thursday, Apple announced the results of their Q2 FY 2022. Overall, the company recorded almost $97.3 billion in revenue the last 90 days, a record for Q2 in Apple’s history. That means they generated more than $1 billion a day. The 9% YoY growth is already on top of the 54% growth last year. To put it a bit more in perspective, only 26 companies in the S&P 500 had more revenue in the whole year of 2021 than what Apple made in this quarter. It’s also worth noting that these numbers were affected by the supply chain constraints. Just really spectacular! While YoY growth rates have been declining, it’s not a surprise given the rule of big numbers. Plus, this year will see some hardware upgrades that can catapult Apple’s revenue to new heights.

Product, Service and Overall Margin
Figure 2 – Product, Service and Overall Margin
Apple 4-quarter rolling average revenue
Figure 1 – Apple’s YoY Revenue Growth & Rolling Average Revenue

While Services still only makes up 20% of the company’s revenue, its gross margin is a spectacular 73% due to higher sales from advertising, the App Store and cloud services. I suspect this trend will continue in the future. It costs Apple little to offer cloud storage and how many Apple device owners who love taking photos and videos yet are limited by the free storage don’t have an iCloud subscription? Apple Care is a warranty program that gives a bit more assurances to device owners. Given that Apple products last a very long time and most customers are careful with their devices, Apple Care is a very profitable service for the company. The iconic tech giant recently launched Apple Business Essentials, which is similar to Apple Care, but for small businesses. The new service has a lot of potential and will be a great contributor to the company’s margin. Last but not least, advertising. It’s not a coincidence that every popular platform wants to have an ads solution. The demand is always there and the margin is high. Apple is still in the early stage of monetizing traffic to the App Store; therefore, will undoubtedly fine-tune its ads operations so that it will keep raking in profitable dollars.

Apple Paid Subscriptions
Figure 3 – Apple Paid Subscriptions

In the last quarter, supply chain constraints still badly affected iPad, making it the only major business segment of Apple without a YoY growth. Wearables and Services haven’t had a down quarter in the last three years. In fact, growth has been in double digits. Mac showed an impressive 15% growth on top of a 70% increase last year. According to Apple’s CFO, “we had a March quarter record for upgraders, while at the same time, nearly half of the customers purchasing a Mac were new to the product”. iPhone, led by the iPhone 13 line-up, grew by 5% after recording 66% increase last year. The company estimated that the lockdown in Shanghai will impact revenue by $4-8 billion in Q3. Hence, the winning streaks of some segments may likely come to a halt in 90 days, but since demand is very strong for Apple products, the company has reasons to be confident in the long-term health.

Apple's Business Segments' YoY Revenue Growth
Figure 4 – Apple’s Business Segments’ YoY Revenue Growth

Regarding geographic segments, Americas is a bright spot with YoY growth of 19%, better than management’s expectations. Europe was adversely impacted by the pause in Russia for a month. China is still Apple’s 3rd biggest segment, but the company warned that Covid-related restrictions would affect demand, at least for Q3 FY2022. Japan and Rest of Asia Pacific felt the impact of unfavorable foreign exchange rates.

Apple Geographic Segments' 4-Quarter Rolling Average Revenue
Figure 5 – Apple Geographic Segments’ 4-Quarter Rolling Average Revenue

Overall, it is another great quarter from Apple despite all the macro challenges. It is proof that the underlying strengths of the business are still intact and goes to show the calm and competent leadership of the management. Zoom out and you will see that there is no other company that can rival Apple in terms of product and service portfolio, the global scale and the customer loyalty. There are challenges and uncertainty ahead, including the war between Russia and Ukraine, Covid-related restrictions in China, the supply constraints, especially silicon shortages, and unfavorable exchange rates. Nonetheless, I am confident Apple will navigate through such challenges deftly and come out stronger.

Disclaimer: I own Apple stocks in my portfolio

Apple’s financials through charts

Apple revealed a stunning quarter last Thursday, surprising analysts and, in my opinion, even themselves. You can listen to the earnings call and read the 10Q here. I am putting the numbers in perspective through the charts below. If you find my work useful and informative, I’ll appreciate a thumb up or a follow. Have a nice weekend!

Apple had about $124 billion in Q1 FY2022. If we look at the last four quarters, it generated $94 billion a quarter, higher than most Fortune 500 companies did in 2021

Services has got a lot of attention due to its explosive growth, but Product and iPhone in particular are still the main revenue drivers

Both Product and Services’ gross margins have been increasing in the last 2 years. Services’ margin is an astonishing 72%

Wearables is now Apple’s 3rd biggest business

Wearables and Services have grown every quarter YoY since 2018

Apple is back in China

Japan, Apple’s smallest geographic segment, has an astounding operating margin of 47%

Apple’s users are increasingly engaged within the ecosystem

Direct channels have made up 1/3 of Apple’s business in the last three years

Disclaimer: I own Apple stocks in my portfolio

Weekly reading – 9th October 2021

What I wrote last week

The Mundanity of Excellence

Good Business reads

Measuring the Moat. An absolute belter. If you want to understand the bases of competitive moats without paying thousands of dollars for a degree, read this one article instead. Oh and it’s marvelously free.

Google’s pivot away from bank accounts shows why finance is a tough industry for tech giants. The article cited the fear of damaging the cloud business and the regulatory scrutiny as the reasons why Google is abandoning its plan to get into the financial world. But there is perhaps one more reason. Google may have concluded that their organization isn’t set up to do well in the financial world and the likes of Apple or PayPal are far better positioned to compete. Why risking billions of dollars when the upside doesn’t look that likely?

Inside the Rise of the Game-Changing ‘Chipotlane’. “Digital represented a $916 million business for Chipotle in the second quarter of 2021. When Chipotle collected $262 million in digital sales in Q2 2019, it marked a 99 percent year-over-year rise and was more than it produced in all of 2016. The Chipotlane doesn’t have a menuboard. It’s a digital order drive-thru pickup lane where guests who pay in advance arrive and get their food from a quick handoff. Restricting Chipotlanes to digital orders stripped friction out of the process. And it avoided past concerns that kept Chipotle from ever seriously considering the channel, fast casual perception or not. New Chipotlanes continue to open with sales 20 percent higher than traditional formats. They operate with 200 basis-points higher restaurant-level margin. This incremental profit comfortably offsets the $75,000–$100,000 cost of a Chipotlane and yield cash-on-cash return of at least 500 basis points above standard locations, BTIG analyst Peter Saleh said.

LRT Capital Q3 Investor Letter. It includes a nice write-up on Tractor Supply and was written by an intern

Other stuff that I found interesting

Facebook to act on illegal sale of Amazon rainforest. Significant changes only happen when those in power put it to good use. As in this case. It’s a waste and pity that in some cases, powerful entities like Facebook take no action because they fear backlash or hit to their bottom line.

The great Koh Kong land rush: Areas stripped of protection by Cambodian gov’t being bought up. The amount of forest loss has increased markedly in Cambodia in recent years. The same phenomenon has happened in Vietnam for years. What good is technology when we can’t preserve the Earth and natural landscapes for future generations?

iPhone Macro: A Big Day for Small Things

Writing In Public, Inside Your Company. This makes me think a lot about what I can do at work to make writing more popular

Stats

Almost 78% of all new cars in Norway in September were battery electric vehicles

Only 1 out of 4 households in Europe invest in equities and funds since 2008, compared to 50% in the U.S

90% of American shoppers still consider prices as the most important driver in fresh food consumption

40% of US shoppers will start their holiday shopping earlier this year than they did last year. 22% have already begun, with another 22% planning to get started before Black Friday, per Klarna

87% of teens own an iPhone and 88% expect an iPhone to be their next phone; Apple is No. 1 watch brand for first time

The productivity app Notion announced that they currently have 20 million users, 80% of which are outside of the U.S

Weekly reading – 25th September 2021

What I wrote last week

Is BNPL replacing credit cards?

My thoughts on Visa’s new benefits for U.S Signature/Infinite cardholders

Articles on Business

When to Buy Now, Pay Later, and When to Just Pay Now. “Affirm doesn’t report payments on its four biweekly payment zero-interest loans, it said, or when consumers are offered a three-month payment option with no interest. Afterpay doesn’t work with credit bureaus at all. Sezzle Up explicitly informs users that it will report on-time payments to Equifax and TransUnion. Affirm doesn’t charge late fees, but late or partial payments can hurt your credit score, and may prevent you from using the service in the future. Sezzle Up also reports delinquencies. Klarna and Afterpay revoke access to their platform until payment is made. Both companies also charge late fees, tacked onto your next payment. Afterpay charges $8, or 25%, of the purchase, whichever is less, while Klarna charges a maximum $7, or no more than 25%, of the past due amount. Klarna said it will contact users to collect payment before charging a late fee.

This delivery app went above and beyond for its workers. Then Uber took over. Cornershop’s original operating model was more beneficial and friendly towards workers. After the acquisition, life became more challenging for drivers. It remains to be seen whether the regulation in Chile will allow workers to unionize and force Uber to recognize drivers as full-time employees. This is a classic case of conflicting interests between gig companies and drivers as well as of the important role that governments play in this conversation.

Why the University of Florida gets a ~$20m cut of Gatorade profits every year. A fascinating story on a wildly popular drink.

The Most Important iPhone Ever. “What makes the iPhone and perhaps Apple special is that it seems to deliver things that nobody asks for but then everybody wants while eschewing overshooting a performance dimension that a few demand but most won’t use. The tragedy of overservice and disruption is that if you don’t shift the definition of performance eventually you run out of demand at the top of the performance curve. That opens you up to “good enough” competition from below. Instead you need to re-define the notion of performance: compete on a new basis, reset expectations. That the iPhone can find new dimensions of performance and hence demand is effectively a solution to the innovator’s dilemma.”

PayPal Introduces Customers to the Next Digital Payments Era with the New PayPal App. “The new PayPal app will introduce new features including PayPal Savings, a new high yield savings account provided by Synchrony Bank, alongside new in-app shopping tools that will enable customers to earn rewards redeemable for cash back or PayPal shopping credit and uncover deals with hundreds of merchants. Additionally, the new app offers PayPal customers a single place to manage their bill payments, get paid up to two days earlier with the new Direct Deposit feature provided through one of our bank partners, earn rewards and manage gift cards, send and receive money to friends, family and businesses, pay with QR codes for purchases and redeem rewards in-store, access and manage credit, Buy Now, Pay Later services, buy, hold and sell crypto, as well as support causes and charities they care about.”

Other stuff

The tangled history of mRNA vaccines

Stats that may interest you

“One in five consumers made a purchase using a “buy now, pay later” service within the last 12 months.

One in six consumers who made a buy now, pay later service purchase regret doing so, commonly citing high interest rates, a lack of options to build credit, or making unnecessary or unaffordable purchases.”

There have been 47 startup venture deals in Africa in 2021 so far with the average deal size of $21 million

CPC on Amazon ads is $1.27 in August 2021, up from 86 cents from a year ago, according to a survey

31% of online grocery shoppers use PayPal, according to a new study by ACI Worldwide and PYMNTS

Fuel Wasted Due to U.S. Traffic Congestion in 2020 Cut in Half from 2019 to 2020

14% of U.S consumers said they switched to an iPhone from another operating system in the last two years, a report said

Apple Q4 Earnings Report

Apple announced their Q4 earnings today. Below are my notes of the earnings report.

Before we go to the financial analysis that I did, here are some noteworthy remarks from the investor call (Source: Seeking Alpha)

  • This Q4’s revenue is the highest ever. The tailwin in foreign exchange was estimated to be around $1 billion
  • iPhone 11 has been the best selling phone since the launch
  • Services saw record growth in revenue in all five geographic segments
  • “For Apple Pay, revenue and transactions more than doubled year-over-year with over 3 billion transactions in the September quarter exceeding PayPal’s number of transactions and growing four times as fast. Apple Pay is now live in 49 markets around the world with over 6,000 issuers on the platform. We believe that Apple Pay offers the best possible mobile payment experience and the safest, most secure solution on the market. We’re glad that 1000s of banks around the world participate.”
  • Customers will be able to purchase new iPhone and pay for it with Apple Card over 24 months with zero interest
  • Wearables saw record revenue in all tracked markets
  • Record revenue was recorded in the U.S., Canada, Brazil, the UK, Germany, France, Italy, Poland, Korea, Malaysia, the Philippines and Vietnam
  • “Our active installed base of iPhone continues to grow to a new all-time high in each of our geographic segments. And in the U.S., the latest survey of consumers from 451 Research indicates iPhone customer satisfaction of 99% for iPhone XR, XS and XS Max combined. Among business buyers who plan to purchase smartphones in the December quarter 83% plan to purchase iPhones.”
  • 450 million paid subscriptions compared to 330 million over a year ago
  • “We generated an all-time revenue record for Mac in the US and in India and a fourth quarter revenue record in Japan. More than half of the customers purchasing Macs during the quarter were new to Mac, and the active installed base of Macs again reached a new all-time high.”
  • “iPad revenue grew in all five of our geographic segments with a Q4 revenue record in Japan. In total, over half of the customers purchasing iPads during the September quarter were new to iPad, and the iPad active installed base also reached a new all-time high. The most recent surveys from 451 Research measured a 95% customer satisfaction rating for iPad from consumers and 97% from businesses. And among both consumers and businesses who plan to purchase tablets in the December quarter more than 80% plan to purchase iPads.”
  • Cash and marketable securities stand at $260 billion. Net cash stands at $98 billion
  • In terms of hardware as a service or as a bundle, if you will, there are customers today that essentially view the hardware like that because they’re on upgrade plans and so forth. My perspective is that will grow in the future to larger numbers. It will grow disproportionately”

The following financial analyses are what I compiled from 2014 to now. For YoY comparison, there won’t be any figure for 2014. 2014 still appears on the charts, but only because it will take me too much time on my computer to remove it. Please bear with me.

Operating Margin, Top and Bottom Line Observations

Revenue reached all-time Q4 high even though the growth is modest compared to the two previous years.

Operating income actually dropped quite significantly as the cost of sales increased, lowering both margin and the net income growth.

Product Segment

As you can see below, Mac and iPhone declined year over year. The decline was offset by growth in iPad, Services and Wearables.

iPhone still makes up more than half of Apple’s revenue, but its influence has been waning over the past years. Meanwhile, Services and Wearables have been on the rise, with the latter now bigger than iPad. Services in Q4 almost made up 20% of Apple’s total revenue.

Transition to a higher margin Services-focused company

Apple has reported figures for Product and Services for the past two years. Product segment made up 80.5% of Apple’s total revenue, down from 83% from a year ago. It was offset by the rise of Services, up to 64% from 61% a year ago. It’s a good trend if you look at gross margin. Services carries twice as big gross margin as Products.

Regional Segments

Americas is still the dominant geographic segment for Apple. China has been slightly declining, standing at around 17% of Apple’s total revenue. Rest of Pacific has been increasing, even though its size is relatively small compared others’.

However, in terms of gross profit as % of revenue, America ranks last while Japan tops all geographic segments

Operating Expense as % of Revenue

Apple has been spending more as % of Revenue on Research and Development.

Overall, it seems like a good quarter for the company with increase in revenue despite the drop in the iPhone segment. Services is on the rise and so is Wearables. Airpods Pro hit the stores yesterday and I have seen plenty of positive coverage

It’s a bit concerning that cost of sales increased this quarter, which I suspect is due to price cuts. It will be interesting to see how the upcoming quarters will be. The transition to Services and what the company has done have been positively received by Wall Streets

Disclaimer: I own Apple stocks in my personal portfolio

Quick review of iPhone 11

After years of delaying a phone upgrade, I finally gave in when my old iPhone 5S’s battery dropped from 50% to less than 5% after one phone call. I bought a new iPhone 11 last Friday at an Apple Store and wanted to share a few thoughts after using it for almost a week since I doubt that I will have major other use cases later on. It’s worth noting that while I was standing in line to get the new phone (and it’s a long line), I was pretty much one a few people who stood there to get the 11. Most customers were there to get the Midnight Green color which is only available on 11 Pro and Pro Max. I won’t be surprised to see that the color is the best selling iPhone this year. Apparently, Walt Mossberg, a famed tech journalist, had pretty much the same observation

Camera

The camera on iPhone 11 is fantastic. It can take photos with dim lights and photos have remarkable quality. I am not a photographer and I suck at making adjustments for photos, but these are some that I have taken so far

The setting has way less lighting than it looks and I didn’t adjust anything
Some food in Chicago close up

FaceID

FaceID works when my face isn’t directly in front of the camera, when I lie on my bed at night with only the reading lamp on and when I have sunglasses on. You can choose to set up FaceID so that it will work even when your eyes are closed, even though for security reasons it is not recommended. The feature facilitates log-ins and payment seamlessly, something that a person who upgraded from iPhone 5S very appreciates

No notification while driving

The phone’s default setup prevents notifications from app while you are driving. If you are on a train or bus, you can manually turn it off easily. If you just go about your day and drive without giving it much thought, don’t be surprised that you won’t receive alerts from your friends.

Blocking unknown callers

There is a feature that blocks calls from numbers that are not in your phone book. This option; however, may be annoying if, for instance, you are waiting for a call from Google to verify a log-in like I sometimes do, due to the two-step authentication security feature.

Battery

I am not a heavy phone user in a sense that I don’t listen to music much on the new phone yet and I don’t play games. So even though my battery lasts more than a day with all chat messages, Twitter, Facebook and maps, it may not be a practical true yardstick of the battery life. Nonetheless, if your use cases are similar to mine, the phone’s new battery is pretty awesome.

Because iPhone is one of the most covered products and Apple one of the most scrutinized companies, I am sure there are others that have reviews in depth. For the simple use cases and features that fit my life, the phone has been great. So far.

Disclaimer: I own Apple stocks in my personal portfolio.

Weekly readings – 21st September 2019

How Photos of a Remote School Went Viral, and the Happy Ending That Followed. A beautiful story that makes me appreciate what I have more

The Sun Is Stranger Than Astrophysicists Imagined

A Brief Primer of Asia’s Mid-Autumn Mythology in 3 Folk Tales. Ever heard of Mid Autumn season in Asia? This article offers a great primer on one of the most popular events Asians, especially Southeast Asians, celebrate.

Remarkable story about small Vietnamese community and its transformation

USC Law Commencement Speech. An honest and insightful commencement speech by Charlie Munger

Creativity Is the New Productivity

China’s second largest e-commerce site J.D.com Experienced a 480% leap in iPhone Preorders over Last Year

NPR Shopping Cart Economics: How Prices Changed At A Walmart In 1 Year

Amazon Changed Search Algorithm in Ways That Boost Its Own Products. The change in algorithm goes against the ‘customer-centric’ philosophy that Amazon is known for

The Cost of a Mile

Raising Prices is Hard

What Really Brought Down the Boeing 737 Max? A super long and doozy read on 737 Max, but boy, is it good!

Vietnam Becomes a Victim of Its Own Success in Trade War. As a Vietnamese, I am no stranger to the terrible infrastructure in my country. That’s why I haven’t been bullish on our chance at benefiting from China’s tariff war with the US

Silent Skies: Billions of North American Birds Have Vanished

Netflix: how will the story end?

Apple’s multi-sided game

There were quite some surprises unveiled at Apple Event today:

  • Apple Arcade: $4.99/month for a whole family
  • Apple TV+: $4.99/month for a whole family and free if you buy a new iPhone, iPad, Apple TV or Mac
  • Price cuts for devices such as iPhone and Apple Watch Series 3

For a company notorious for ripping off consumers, a notoriety that they earn to a large extent, undercutting competitors and lowering prices for their high-end products are unusual. However, it may make sense in the game that Apple is playing.

Formerly relying on hardware, especially iPhones, for their revenue, Apple has been transitioning to be more of a service company. They have been pushing hard on the service part, including but not limited to Apple Pay, iCloud, Apple Card, Apple News+, Apple Arcade, Apple Care. However, to sell these services, they first need to find a way to put hardware into humans’ hands.

In return, hardware would be just boring pieces of metal without great user experience that comes from the operating system and ecosystem, including apps and services. There is no shortage of alternatives to expensive products that Apple offers. To really convince a consumer to dole out a significant amount, they need to present compelling reasons. Hence, the gradual updates to operating systems and a slew of services.

But Apple can’t do everything alone. They need partners. They need content partners such as publishers, game companies and producers as well as strategic partners like Goldman Sachs. These partners, I guess, are interested in the reach that Apple has through its installed base. By working with Apple, they hope to leverage the media coverage that Apple enjoys and get to many customers as quickly as possible.

By lowering entry prices for Arcade and offering TV+ on a very attractive term, I suspect that Apple wants to expand the subscriber base quickly from the existing user pool. The bigger the subscriber base, the more leverage Apple will have with content and strategic partners, whose future creations in turn will increase the appeal of Apple’s services.

By lowering hardware’s prices, there may as well be other reasons and I am so speculating here, Apple wants to lure non-Apple users and expand its user pool. It’s a two-pronged approach to grow the ecosystem.

It’s truly remarkable to me how a company this size can keep adapting to the changing landscape of the business environments to be competitive in a highly competitive industry. Some folks say Apple isn’t taking risks. But any strategic mistake by omission or commission may result in at least two years behind competitors and billions in market valuation. Others complain that the Cupertino-based company is no longer innovating. It’s tricky to tell if it’s completely true or false. But it’s worth remembering that Wearables & Accessories, including Watch and Airpods, generated $5.5 billion in revenue in 90 days last quarter while the main products still remain sticky to consumers.

As a student of business, I admire the company. No company is flawless, but it’s amazing what Apple has been able to do to navigate through competition and constantly changing business environments.

Disclaimer: I do own Apple stocks in my humbly small portfolio.

iOS12 and Time Management

I have been on iOS12 since it was first released and much satisfied with this new version even though my phone is just an iPhone 5S. In addition to the speed and the UI, one feature that I am very happy with is Screen Time.

Only does it allow users to keep track of how much time is spent every day on their phones, but it can break the time down into app categories such as productivity (emails) or social networking (Twitter, Facebook, Slack…). Moreover, users can put a time limit on each category and application’s usage. Once a limit is applied and reached, the categories or apps in questions are temporarily unavailable. It means that users have to manually remove the limits first in order to activate the apps again.

One feature I really like is Downtime. Applied to a specific time span in a day, the feature locks down the phone applications, barring some that are specifically spared by the user (see below)

IMG_8251

I tend to apply Downtime from 7-10am to avoid distraction and maximize productivity (I let YouTube through to listen to work/focus music videos that are usually hours long on the app). In this Internet era, focus is a luxury. Everybody’s attention span is destroyed and distractions are everywhere. This feature, though reversible, helps us avoid that reliance on our phones and regain some productivity.