by Jean-Louis Gassée
Apple’s quarter after quarter numbers draw much justified attention. Analysis of the numbers is always interesting — and prompts us to look beyond the three months just elapsed.
Apple’s numbers for the first quarter of its Fiscal Year 2023 (ending in December 2022) were less than stellar. The official press release points to a financial summary PDF from which I extract this chart:
According to my favorite AI conversationalist, the last time Apple saw a drop in revenue was in Q2 FY 2020, “due to the impact of the COVID-19 pandemic”, a claim that happens to be an hallucination. For that quarter, revenue was $91.8B versus $84.3 the year before. More pedestrian research says the last time revenue declined was in Q2 2019.
(As an aside, companies such as Meta, Alphabet, Amazon, and Microsoft also experienced disappointing revenue and/or profit quarters — and laid off tens of thousands of workers. So far, Apple hasn’t announced layoffs, seeming “content” to slow down hiring and to trim expenses.)
If you’re looking for sane discussions of Apple’s business, I recommend Neil Cybart, either by paid subscription at Above Avalon or summarized for free as @neilcybart on Twitter. Or you can subscribe to Apple 3.0 with its regular, no-nonsense analysis of Wall Street chatter by former Time and Fortune writer and editor Philip Elmer-Dewitt (@philiped).
In their traditional Earnings Call, Apple CEO Tim Cook and CFO Luca Maestri discuss the company’s latest numbers with Wall Street analysts and gingerly offer guarded pronouncements for the coming months. (A transcript of the conversation is diligently offered by Seeking Alpha.)
For further study, Apple just published its latest 10-Q SEC Filing. I tend to focus on the document’s second section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations. It’s highly readable and rich in details such as the company’s Manufacturing Purchase Obligations (MPO), money that Apple has committed to pay to its manufacturing partners for the coming year. The MPO number provides a reasonably reliable indication of the company’s view of its upcoming business.
This year, Apple has disclosed $55.1 billion, with $54.8 billion payable within 12 months. At the same time last year, those numbers were $47.6 billion, with $47.5 billion payable within 12 months. One way to interpret this year’s higher MPO (+15.7%) is that the company sees substantial growth in its not-too-distant future. We’ll look again each quarter. We’ll also recall how such a usually reliable indicator has sometimes been defeated by market conditions and supply-chain travails.
Continuing to look at Apple’s future, we note the absence of the promised Apple Silicon Mac Pro. The lack is undoubtedly attributable to TSMC’s delay in moving from 5 nanometer transistors to the more advanced 3nm process (“Compared with the N5 process, the N3 process should offer a 10–15% increase in performance, or a 25–35% decrease in power consumption”). Progress is slow but, according to TSMC, it’s not stalled: As of December, “volume production using its 3nm process technology N3 is under way with good yields”. If this is true, and even allowing for some schedule slips, Apple customers should look forward to more advanced devices in all parts of the company’s portfolio later this year. In addition, I’ll be curious to see if and when Apple Silicon man, Senior VP Johny Srouji, one of my favorite Apple execs, manages to take his items into Qualcomm territory and make Apple Silicon RF modems for iPhones. Past rumors held that goal as a war cry for his organization, but victory may still prove elusive.
Moving from reasonable rumination about incremental improvements, we now turn to more challenging speculation. I’m referring to regularly repeated rumors about Apple’s entry into the AR (Augmented Reality) field.
In an August 2022 Monday Note, I expressed skepticism: I didn’t think Apple’s putative AR products would provide the company with a new growth wave of iPhone proportions. My doubts are multi-faceted. To start with, a wearable AR device — glasses or goggles — sounds much more complicated than a phone: It needs multiple cameras and sensors, projectors into our field of vision, powerful processors, more complex system software, real-time rendering challenges to avoid disorienting rendering lag, battery power/size and device temperature challenges… And that’s to say nothing of the need for a new breed of more complicated applications — and price levels
I have the utmost respect for Apple’s engineering prowess, but there’s an additional worry: Today, we use our smartphones all the time, everywhere, for everything — that’s barely an exaggeration. Would we use AR glasses as intensively?
At a visit to an Italian University last year, Tim Cook expressed himself thus [as always, edits and emphasis mine]:
“I’m super excited about augmented reality. Because I think that we’ve had a great conversation here today, but if we could augment that with something from the virtual world, it would have arguably been even better… Not too long from now you’ll wonder how you led your life without augmented reality. Just like today, we wonder, how did people like me grow up without the internet. And so I think it could be that profound, and it’s not going to be profound overnight…”
I have great respect for Cook and I take his pronouncements on Apple’s AR future seriously. Hopefully, his vision will prove more helpful than his oft-quoted (mis)statement on the iPad’s role:
“The iPad is the clearest expression of our vision of the future of personal computing.”
This brings us to wilder rumors. One story says that in the “2025 timeframe” Apple will introduce a Mac with a touch screen. After Apple lobbed toaster-fridge barbs at Microsoft for adding touch screens to its laptops, the company found itself on the receiving end when it came out with the 2020 iPad Pro, The toastiest fridge we’ve ever made (MotleyFool). Imagine the agitation if Apple did in fact come up with what many would call a Microsoft Surface clone.
There is more, such as an iPad with a folding screen. So far, devices with folding screens haven’t done much beyond short bouts of media agitation. To be continued if/when folding-screen technology continues to progress.
And we have the perennial Apple Car topic. Tempting as it is to dismiss it, we can’t ignore the continued investments by “legacy” automakers, by Tesla, and by technology companies such as Cruise.
To be continued.
— JLG@mondaynote.com