Apple Sales Crush Estimates in Record Quarter for the iPhone

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2:01Well, I've got to say, investors liken this report in the aftermarket. Stock's still up about 2 % here in the post-market trade. Hey, let's see what Bloomberg News Managing Editor for Global Tech, Consumer Tech, thinks about this. He is Mark Gurman, knows everything about this company, lots of exclusives. This feels pretty good. Tim Cook gets to keep his job, right? At least for now. This is a massive, massive, massive quarter. This is a home run, their greatest quarter ever by orders of magnitude. It's a gigantic beat on overall revenue. China is back. You have a big beat on the iPhone in particular.

2:44$85 billion quarter is just insane. The installed base,$2.5 billion. The numbers are just beyond excellent. We could ignore the fact they missed on wearables, home and accessories. We can ignore the fact they missed on Mac. We could ignore the fact that they barely crossed expectations on services. I guess none of that matters when the iPhone is selling so well. But still, there's the big existential question of what's next. It's an important question because of AI, and Apple absolutely needs to figure out its AI strategy. There needs to be an AI reckoning of some sort there. But they just bought themselves a very long time with this just insanely great quarter.

3:26So let's talk about a couple of the areas that you highlighted there. One is China and another one is the sort of the concerns that people had about memory chips in this quarter and the rising prices of memory chips. How was Apple able to navigate this so it didn't hit its margins like people thought it would? They buy components and memory components quarters and months in advance, sometimes years in advance. They have these deals struck. So they're working off of numbers and pricing and materials here that really give them extensive pricing power over competitors. So we'll hear more about that on the call today, but it seems like they're fine.

4:08Mark, I love this. I mean, I'm looking at our live blog, so you must have kicked this out before you jumped on air with us. But you did mention that the significant things on the call, you've already talked about the AI strategy. Succession, you've kind of said maybe that's off the table for now because this was such a blowout quarter. You talk about the long-term viability of the business if it doesn't get its AI act together. It's hard to even think about that when you see the numbers here and just what a big company this is and how significant it is, I feel like, in so many different people's lives.

4:38Like, I have an Apple household. I think Tim has an Apple household. Is that really the long-term viability? If they don't get AI together... They call me Tim Apple, in fact. They do. Yes, yes. I said long-term, right? And I'm talking really long... Okay. The really long-term here, right? Like, at some point, there is going to be a need to fulfill these AI desires. And, you know, they're going to have to figure that out. Well, Anurag Rana of our BI team, he talked with Tim and I just moments ago. And he talked about, you know, how they're working with Google when it comes to AI, relying on them right now for their models.

5:17And so they're not doing the big AI spend. That makes sense for now, too. So do you agree that that's kind of a smart strategy now and kind of waiting it out a little bit? But at some point they've got to kind of do their own thing? It's not that they're waiting it out. It's that they have no choice. They have nothing internal. It's not that they're waiting it out. It's that they need to do it. And so they're partnering with the best partner they can. that's going to offer them the best pricing power, which for now is Google. They initially wanted to work with Anthropic, but from a pricing standpoint, that didn't work out.

5:46They couldn't work with OpenAI because they're hardcore competitors at this point. So Google was all who was left. And obviously, the judge didn't break up the search deal there. So it made sense and it aligned pretty nicely for them. Okay. Do we know yet how Apple was able to beat expectations in China? Once again, for the first quarter, the most recent quarter, Greater China revenue came in at$25.53 billion. 21.82 was the estimate. You said it minutes ago. It is back in China. You're holding up an iPhone right now. That's what they did? I'm answering your question. I'm answering your question.

6:20It was the iPhone 17? It's the color orange. Oh, it's the color orange. It's that easy? That is the Pro Max. No, it's design. People buy the new designs. This is the first new design in half a decade. It got it done. That's why you do new designs, because you're trying to bring in new customers. You're trying to spur upgrades, and that's the way to do it. Didn't they know that? Of course they know that, but it takes time to do these new designs, and you kind of want to get it right. And then you can't do it too often because if you do it too often, it doesn't have the power that it has if you do it only every so often.

6:55Hey, I want to roll into this, a story you've got on the Bloomberg that you put out today, And this has to do with Apple buying the Israeli AI startup that interprets facial movements, QAI. Is this important? I think it's going to enable some features for future AirPods, smart glasses and mixed reality headsets and all that. But it's not fundamental to the overall AI strategy, which I think they're still trying to figure out. Also, just one piece of the puzzle. Mark, another story that you reported on this week, Apple's Tim Cook calls for a de-escalation after Alex Preddy's shooting in Minneapolis.

7:35There's this thread that Tim Cook is trying to, a needle that Tim Cook is trying to thread. He was at the White House on Saturday. He didn't do a very good job. Why not? Well, I think his statement was kind of worthless in some respects. I think that he spent, I don't know if it's a statement talking about how the president, the one who's overseeing the policies that led to the situation in Minneapolis, has his ears wide open to listen to feedback. I mean, I'm not sure that's what his employees who are sort of revolting internally about this were looking for. I think they were looking for Tim Cook to take some sort of stand here, and he really didn't.

8:16you know, from his perspective is he's scared to upset Trump and get tariffs and other policies slapped onto Apple's business. So you'll see him continue to do what he's doing, because this is not about taking a stand at this point for him. This is about protecting the underlying business. And the results speak for themselves. The underlying business seems pretty well protected. All right. Like we like to do, and you know, we're going to go there. What do you think are the top two questions that's got to be asked on this call? They got to ask about AI and they got to ask about succession. I'm sure they're not going to, though.

8:51I mean, maybe AI, but like they're not going to ask about succession and risk not being invited back next quarter to ask more questions. Are they going to ask about him being at the White House to see the Melania movie? Like I said, they don't want to risk being banned from asking questions next quarter. So no one's going to ask anything that rocks the boat. All right. You'll see. I hope I'm wrong. Okay. Great stuff, as always. And we'll be looking for your reporting after that call as well. He is Mark Girmish. Thank you, Mark. Managing Editor for Global Consumer Tech for Bloomberg News out there on the West Coast.

9:24Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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12:18you're listening to the bloomberg business week daily podcast catch us live weekday afternoons from 2 to 5 p.m eastern listen on apple carplay and android auto with the bloomberg business app or watch us live on youtube well let's bring in ed ludlow he's the co-host of bloomberg tech on bloomberg tv he joins us from our san francisco bureau ed the story from mark german is out sales trouncing estimates after iPhone fuel's record quarter. Tim Cook called the demand, quote, unprecedented. Is this all about the iPhone doing well around the world? Yeah, all about the iPhone. And in some ways, it's like an issue of chronology and timing, right?

12:58Think about when Apple announces the iPhone 17 generation, and we're all there in Cupertino for it. And then it goes on sale and you have the holiday quarter. So, you know, actually it goes a little bit beyond that yeah you know the this is where the bloomberg terminal comes in useful so that is a big beat you can just see it looking at the headline on a dollar basis but not only is it nine percent above consensus even the top end of the most bullish ranges on how this iphone would do were only about 81 billion dollars i think it came in above 85 billion dollars so so they've done something either the phone has got traction or they've done something smart with the timing of it and it sold well.

13:38The bit that's missing, of course, is that that commentary does not have anything specific to do with greater China. We know the numbers in greater China were really good, but how did this iPhone do that? Yeah. Like, is it just, whoa, just a good quarter or was it luck or was it really strategy, right? Of understanding. I'm super cautious because sometimes we've relied on third party data. Like, I won't name it. It would be a bit unfair but there are various third-party data sets that say oh no apple's doing really bad everyone knows you're talking about it's okay okay uh i'll stick to my guns and um you know and then apple comes around with earnings and the opposite has been true on more than one occasion um but the third this occasion like the third-party data that this sort of incremental and anecdotal of people queuing up for the iphone 17 in all markets but like greater China.

14:33It was kind of there. So that's interesting. Where else do you want to go? I mean, this is Apple. There's anything. We want to go to AI. Yeah. So you want to ask me about the thing that they have nothing to say about right now? Sure. Thanks, Tim. Every analyst has really pointed to that. I mean, we can talk about the relationship that Apple has with Google and for Gemini. We can talk about all the money going to open AI potentially from Amazon and other companies, about a potential$100 billion fundraising round. We could talk about Apple relying on third parties rather than building its own. Is there a risk in doing that?

15:08I go back to basics and, you know, I'll kind of rely on Bloomberg's Mark Gurman, who is one of the world's leading journalists when it comes to covering not just Apple, but consumer electronics. And in the context of this earnings print, what he's written is probably true, that Apple has done enough to mask over or allay the concerns that investors have about a lack of progress in AI as a product. You know, the reporting's quite clear. And it's been announced now officially, right, that at least on the interim, Apple's AI generation of Siri will be underpinned by Gemini. And Mark's reported a lot about the financials around that, right?

15:47It's a 1 billion per annum agreement. We don't and we won't get this sort of announcement like, here it is, here's the date it's coming, and this is what it can do until it's here. You know, that's not how Apple operates. Yeah, it's just, you know, I mean, it's pretty like, where do you go? Where do you go? You know, here we are looking, I mean, the stock isn't up as much as it was earlier. We were talking about, you know, more than a 2 % gain, I think at its highs here in the aftermarket. It's just up about three quarters of one percentage point. What is it that they need to do maybe on the call um is it ai is it that this is sustainable this is a strategy this is you know we figured out china like what is it well uh you know that i i didn't forgive me because i i was blogging i didn't hear what you guys were talking about just before but um in in this very limited earnings release and statement you guys maybe you went over the risk factors and forward-looking yeah we talked about that we talked about that i you know i talked about how you started pointing that out back in May of last year.

16:54Well, in May of last year, I was sat next to you two in the New York studio. Do you remember? And we were like, oh, that's interesting. They've never said that before. But that was the first report post-Liberation Day. Right. The only observation I'll make in line with that is that this release also says nothing about the environment for memory chips. And, you know, like memory chip prices are very high. But their margin was pretty good, right? And their margins were pretty good. And there's a scarcity. And the principal difference is like this. This is why it's so fun to cover hardware companies.

17:26And it's a privilege to be a technology journalist when you get access to all these companies and and speak to the CEOs. If you're a very big company, you have leverage with your supply base. If a supplier has to choose, I've got this number of things and I can only send them here or I can send them there. I can split. It helps to be Apple is what I'm saying. And there are companies that I've covered whose CEOs will privately just agonize over how difficult it is to convince suppliers to give them the things they need. So on the call, that will come up. The sell side are likely to ask about it.

17:58But there are high prices and then there's Apple dealing with high prices. And when I asked Mark this question about how they were able to successfully navigate these higher memory prices, he said, well, one, they're Apple. And two, they buy so far in advance and they buy the components, too, that go in. So at a certain point, Ed, it'll hit them, right?

18:22Well, it's not just that memory prices are high. The reason that memory prices are high is that historically memory, DRAM and NAND, flash memory, is a very cyclical up and down business. Boom and bust. You know, that's what Ian King would say. Boom and bust. Ian King leads our semiconductor coverage, right, at Bloomberg. and it is correct that Apple's supply chain teams are its secret source you know that was Tim Cook's whole thing he was COO like that's what he was good at but the reason prices are high is because of scarcity of availability you know because there is such demand for equivalent chips that are going to data centers and so like Mark's answer is appropriate Apple has leverage and the ability of scale to say like okay we've got ahead of this and one would imagine that their supply chain team is sophisticated enough to have foreseen some of the things that we're now experiencing in that market.

19:18So one, one, the first thing Mark said to us, I don't know you were blogging at, and you were, you were looking at the results was Tim Cook just bought himself time. Tim Cook gets to keep his job. I mean, there's been a lot of questions about succession. Mark says that's one of two questions he would ask on the call. The other would be about AI in your view was was his job not not at risk but you know there are questions about who leads this company after tim cook i uh i am not uh bloomberg's mark german um what i would say right is that when mark did that recent reporting and it's been it's been over a period of time about which executives are now more at the forefront of Apple's future.

20:07He was crystal clear in that reporting that there is no suggestion that Tim Cook being replaced or stepping down or retiring is imminent, that this was a longer-term thing. What I would reflect on is the conversations that I have with people in industry and those that come on the show and talk about it, is Tim Cook is the operator that many people would want in an environment like this, where we still have trade and tariff considerations. The movement of goods between borders from point A to point B is quite difficult. And as we just talked about, specifically memory pricing, that's within his range.

20:52This is not me speaking. This is how people would relay it to me. Mark, when he goes on air and when he writes, and again, I'm not speaking on his behalf, he would talk a lot more about the product, you know, fresh products, reiterated and renewed products in the product pipeline for the future. And right now, I don't know that people are necessarily so worried about that, at least in my world, they are worried about when they're going to get the software bit right with AI. You know, it's interesting you say AI, it's something we talked about just briefly with Mark Gurman. It's a story that he put out, Apple buys Israeli AI startup that interprets facial movements.

21:27He's like, you know, interesting will help in terms of, I guess, product development, but not necessarily a big, big deal. But, you know, what is the number one question that they should be getting on the call when it comes to AI? Yeah, you know, if I had the opportunity to interview Tim Kirk, and let me be honest about it, I haven't had that opportunity, or in any other Apple executive. you know the big question is in the future what is the form factor by which we interact with artificial intelligence in particular voice-based uh uh ai assistance right for the most part i i use and i don't know about you guys but i i use um chat gpt's voice mode quite a lot on my phone and i use other generative ai tools through my laptops and because i'm a nerd and because Bloomberg issues me different things.

22:17I have my own MacBook and I have a Windows-based PC, right? There are other people that envisage a world where the form factor device, the thing that we interact with, is not a phone. It's the glasses per Meta. And look at the surprise upside from Meta's earnings about AI glasses tripling. You know, that's what I'd ask Apple. What do you see in the future about how people use your AI? So, Ed, we have time for one more question, And we'd be really remiss if we didn't ask you your view on this news coming just late in the day. Switching gears a little bit, still on AI. Amazon talks to invest$50 billion in OpenAI, expand ties.

22:55This could be part of a$100 billion funding round, which would value OpenAI at more than$800 billion. When we're talking about a funding round of$100 billion, I mean, we're talking about just the massive, massive scale. What does it mean that Amazon could invest this much money? Well, Amazon probably can invest that much money. What we've seen is most of the hyperscalers that were wedded to one player have diversified. Anthropic and Microsoft have deepened their interaction. Anthropic was very heavily aligned with Amazon. Google and Anthropic are very heavily aligned. Anthropic relies on TPUs.

23:37amazon from a software perspective has tried to accommodate all the players on its bedrock platform which is basically a workplace where you can either train or or build on top of existing models so so the financials are there like if you have a uh if people are watching that are investors in those companies phone me explain the dilution to me explain the post and pre-money valuation um but open ai needs capital it is coming from multiple places apparently um and And one would imagine, based on the reporting that's been done by Bloomberg and others, this is a big, large anchor round before a future IPO as well of some part of the open AI entity.

24:16The scale is just otherworldly, the amounts of money that we're talking about right now. Yeah, just kind of blows our minds. Yeah. All right. We got to run. We know you're going to be there. We know the Apple call with analysts and investors is coming up in just about four and a half minutes time. And we know Ed will be on it in our live blog. We'll be tracking all of it. Ed Ludlow, thank you, thank you. Of course, co-host of Bloomberg Tech on Bloomberg TV. Catch it at 11 a.m. to noon with Caroline Hyde, another co-host. It's always on Bloomberg TV, Monday through Friday. This is the Bloomberg Business Week Daily Podcast.

24:50Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130. We've got to talk a bit more about Tesla. Tom Narayan is lead equity analyst, global autos at RBC Capital Markets. Tom, good to have you on the program. He joins us from New York. I want to start with the sort of the headlines out of the Tesla call yesterday. As somebody who's followed the company for quite a while, were you at all surprised about the Model S and Model X, essentially, in the words of Craig Trudell being put out to pasture?

25:30Out. No, not at all. I think that was pretty much expected, right? I mean, this company is moving to more towards autonomy. It's more of an AI investment, right? Robotaxi, humanoids, right? The car business is in the past, really. We've known about this for a while. Now, maybe it's the final nail on the coffin, so to speak. Wait, you said the car business is... Wait, repeat what you said about the car business, because I think people still, even though they don't value the company as a car company, but it's still thought of by many people as a car company, the car business is what at Tesla? Yeah, in terms of valuation, right?