Winners and losers in Apple’s Q4 results

Investors and company leaders are slowly beginning to recognize that there’s lots of business to be won in developing economies. Apple’s end-of-year results reflected that reality, showing that while some regular markets may be softening, up-and-coming territories are showing a huge amount of promise.

Revenue up, but some headwinds

Apple announced increased revenue and income for Q4, coming in just above expectations at $94.9b, up 6% y-o-y. Today Apple is reporting a new September quarter revenue record of $94.9 billion, up 6 percent from a year ago,” said Tim Cook, Apple’s CEO. Shares took a hit, as usual.

Analysts were watching for iPhone performance and the first hit of Apple Intelligence usage.

They got two hints:

iOS 18.1 is being installed at about twice the rate of iOS 17.1 at this time last year.
They learned that the next batch of languages (after the December update) can be expected in April.

They also learned that iPhone sales at $46.2 billion were 5.5% higher than the same period last year, a nice increase though perhaps not quite enough to regain positive momentum in the market.

Apple noted that performance in China was relatively flat.

“We had the top two selling smartphones in urban China according to Kantar,” Cook countered. He said new customers were purchasing Mac, iPad and the Apple Watch in China.

In other words, flat doesn’t mean bad – the company is upselling other products in its range.

Intelligence on Apple Intelligence

Analysts remain anxious for insight into the impact of Apple Intelligence, though doing so seems myopic given the service has only really been available a few days. However, that focus really is Apple’s own fault, given the amount of product marketing it has churned out.

Has its move succeeded?

The only real data point is that iOS 18.1 has twice the adoption rate of iOS 17.1. “That clearly shows a level of interest out there,” said Cook.

But the real charm in this quarter’s results are the developing markets.

Even in China, where iPhone sales are regularly characterized as “weaker” than normal, recent Counterpoint data claims iPhone 16 sales across the first few weeks to have been 20% higher than those of the iPhone 15 last year.

Welcome to India

“In addition to growth in developed markets, we also saw strong performance in many emerging markets with double-digit growth in Mexico, Brazil, the Middle East, India, and South Asia,” said Cook.

Luca Maestri, Apple CFO, said Apple set an all-time revenue record in India during the September quarter.

India is an increasingly important market for Apple.

Not only does Apple plan to make up to one in five of all the iPhones sold worldwide this year in India (which may be manufacturing data analysts aren’t picking up yet), but the value of the devices it is exporting from that nation are already having an impact on the economy there. The value of iPhones exported from India hit $6 billion last month, up 33%.

No surprise, then, that consumers in India are responding to Apple’s presence.

A recent Counterpoint report cites a 22% market share for the iPhone there. Also, a barometer of platform enthusiasm, iPhone is the biggest-selling device on India’s second user market.  “We continue to be excited by the enthusiasm we’re seeing in India,” said Cook.

When Europe fails

While I agree that it’s open to question if Apple’s excursion in India is generating sufficient profit to bulk up profitability as other markets weaken, it can’t hurt.

It is also hard to tell, given that India’s contribution to Apple’s balance seat is currently included within its European segment.

Ah, Europe, where the cost (to Apple) of doing business continues to accelerate.

Regulation, fines, litigation, make the region an increasingly uncomfortable place for the company to do business in.

Coupled with broad economic decline across the bloc, and its neighbors, it is likely that the challenges it faces there are far more responsible than Apple Intelligence in holding back Apple’s fiscal performance.

That indeed was the case as the company had to write a $10 billion cheque to the EU during the quarter, without which it would presumably have broken a $100 billion quarter, rather than the $96 billion it returned.

A new frontier

Cook describes Apple Intelligence as “a new chapter for our products”.

With that in mind it is important to reflect that the new service is the beginning of a journey, not a destination. More services will be introduced to add to those Apple has already announced.

The need for security and privacy will be market-proven, one AI data lake disaster at a time. And whatever enthusiasm consumers have for AI today should grow as Apple’s message of Trust and Convenience (rather than Data Mining in exchange for convenience) resonates more strongly in future.

In the background, Apple already has an AI road map (it’s Apple, so of course it does). We know this because it doubled the RAM inside Macs to make sure they support that journey.

We also know it because, “Keep in mind that we have released a lot of APIs, and developers will be taking advantage of those APIs. That release has occurred as well, and of course, more are coming. And so, I definitely believe that a lot of developers will be taking advantage of Apple Intelligence in a big way,” said Cook.

It’s way too early to price in the impact of AI on Apple quite yet.

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