Instant Reaction: Apple Slides After Supply Shortages Hurt Its Sales Forecast

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1:56Carol Massar:Bloomberg Audio Studios. Podcasts, radio, news. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. Covering Apple, Poonam Goyal with us from Bloomberg Intelligence, Anurag Rana as well, and Ed Ludlow, host of Bloomberg Tech. So let's get to the numbers. Third quarter revenue,$109.42 billion. That's a beat. $108.85 was what the street was expecting. Third quarter EPS,$2.02 a share. That is definitely above what the street was forecasting of$1.89 a share. If we go to third quarter products revenue,$78.68 billion.

2:44Carol Massar:That too is better than the street estimate of$77.25 billion. Services revenue,$30.74 billion. A little bit light,$31.36 billion. And again, we're kind of highlighting here on the Bloomberg what we call our red sticky, our red headlines. Third quarter revenue, again, better than what the street was forecasting,$109.42 billion versus$108.85 billion. We're now getting iPhone revenue as well, Tim. Yeah, the headlines crossing fast and furious. So iPhone revenue coming in above estimates at$54.25 billion. The estimates for$53.6 billion shares, Apple down about 2.4 % in the after hours. Apple also declaring a cash dividend of$27 a share.

3:25Third quarter greater China revenue coming in shy of estimates at$18.82 billion. The estimate was for$19.58 billion. Apple shares falling about 2.4 % in the post market. When these numbers crossed, they did shoot higher ever so slightly. Watch the after hours carefully and with caution. We haven't heard yet what they're going to say on the call. Very light commentary, too, as Apple is wont to do in their press release, just saying that the company is proud to report the strongest June quarter ever with double-digit revenue growth across iPhone, Mac, and services and in every geographic segment.

4:02This is Tim Cook.

4:03Carol Massar:Setting June quarter records for both EPS and operating cash flow. So still here with our team. Ed Ludlow, I want to bring you back in here. I know you're just kind of going through the numbers too. Initial thoughts here. Again, we continue to see the stock down about 2.5 % here in the aftermarket. Yeah, it's a slight beat against consensus or expectations across the board. Other in iPad, I see a miss. And then in services, I see a miss. On gross margin coming in at 50.1%, Apple does explain that there was roughly two percentage points benefit gross margin from tariff refunds. So we can we can relitigate that on the accounting side.

4:41But EPS, therefore, includes an 11 cent benefit from those tariff refunds. But that's what I see. You know, Tim summed it up. Well, the greater China will be a question. Right. But I see iPad miss and services miss. Services more likely to be a concern if it's a miss than iPad, maybe. But otherwise, strong.

4:59Carol Massar:Yeah. Mark Gurman is going to join us, too, for the conversation in a little bit. But he's also pointing out gross margins slightly above what Wall Street wanted. But again, the stock down about 2%. But let's not forget, the stock has been on quite a rally so far this year. You're looking perplexed. Yeah, I am. I want to bring in Anurag. Anurag, I know that you expected that the string of strong iPhone results would continue this quarter next, given the company hasn't raised prices for smartphones. Has your view changed at all, given what we've seen in the last few minutes with these numbers coming out?

5:32No, there was a beat on the iPhone number, so that's there. But here is the kicker. And I'm looking at gross margins, which was also pretty decent. Now, that's a surprise because you would have expected memory prices to start hitting. The only place where I see slight hiccup is Greater China, so we'll find out what happened there. But it's a very minor problem, a very minor miss. Anurag, are you saying that Apple doesn't need to raise prices because their margins are intact? I hope, see, for their sake, if they can figure out not to raise iPhone lower end prices, it's going to be very good for them.

6:07I think you have to raise prices, first of all, because the memory costs are very high. But I think you and we think it's better to do it on the higher end phones because, you know, people like you are not sensitive to, you know, another few hundred dollars on a iPhone Pro Max. So it's not going to that's not going to be the difference. See, that's another reason why they did that. That's another reason why they did that. So the thing is, I think there is one more good quarter of iPhone coming in, but then things get harder for them next year because then comparisons get tough. This is not a company you can grow iPhone 22 % year after year.

6:43This is not a brand new product. This is a replacement cycle story. So you could see a little bit of a push for people pulling forward some of these things, but things are going to get hard next year when you get into tougher comparison. I want to bring in Mark Gurman. He's back with us. Apple shares down in the after hours. Mark is Bloomberg News Managing Editor for Global Consumer Tech. You were live blogging while you were on TV. Yes. What's your take? My take is that the iPhone number looks great. My take is that the Mac number looks amazing. My take is that service is a little soft and the China number missed the estimate we have here on the Bloomberg terminal.

7:18but at the same time that is you know pretty nice growth on an annual basis where they were sort of i guess in the toilet in china a couple years ago and last year but they've totally rebounded there um it's going to be interesting to see how the foldable iphone performs there as a status symbol well north of two grand so i think it's going to be a hot product there especially because foldables are taking over the smartphone market in china yeah i know you're going to buy a foldable phone of course i am i'll be first in line um so is it so is it the light services in china that's moving the stock lower.

7:46I mean, I know stock was 20 up to more than 22 % going into this print. Yes. Yes. I mean, they smashed Mac, right? But like, I don't think investors have fully grasped the importance of the Mac at this point. I mean, it sort of feels like an afterthought compared to the iPhone and the iPad. The iPad is always light. Wearables have been light for a couple of years now because they haven't really done a ton there, but that is going to accelerate big time over the next three years with these AI devices. Glasses are going to shoot those numbers up. You think people will buy those? I do. I think you'll buy them too.

8:16Tell me about them. Well, Apple is not going necessarily after the smartphone market. They're looking to create glasses that people want to wear, just like the Apple Watch replaced the traditional watch market. They think that their smart glasses are going to replace sort of the low-end to mid-tier glasses market. Not the Maison Bonet's of the world, but the SLR Luxottica's of the world. So they're really going to go after those brands there. They'll have cameras built in. They'll do all the stuff that Meta does, but a little bit more premium and happily because it'll integrate with your iPhone.

8:50Whereas they've really held back iPhone integration with the Meta glasses over the past couple of years.

8:54Carol Massar:Do they actually create something that is competitive in terms of share at the company that moves the needle in terms of the iPhone? Does something else finally come over in terms of contributing more to the bottom line and the top line? You know, I think Ternus will be CEO for the next 15 years, unless, again, something goes wrong that we're not expecting. And someone asked me earlier today on one of the programs, what's going to be the most important product in Ternus' tenure? And I, to their surprise, said the iPhone. I think it's going to be the case that we're always going to carry something in our pocket.

9:26The iPhone or something like it is always going to be at the center of everything. And then we're going to be augmented by glasses, watches, earbuds, you name it. but at some point there will be a transition to be had. I just don't see it anytime in the near future. Has Apple given up on the Vision Pro? Has Apple given up on the Vision Pro? It's on the back burners of all back burners at this point. There's a revamped version that's lighter in development. I don't anticipate it before the end of 28 or early 29 could go further back from that because they have been heavily prioritizing this glasses push.

10:02Smart glasses with no display, smart glasses with AR display. They've got a long roadmap of multiple generations ahead of both of those categories. And you'll see them introduce the glasses strategies early as June of next year. What do you want to hear on the call? I want to hear about the memory shortage. I know it's not sexy, but investors are interested in that. I want to hear about Tim Cook's thoughts on how the transition is going. Most importantly, I want to hear Ternus' vision for Apple. Are we going to hear that on this call? Are we going to hear that on the next call? Probably not. These guys don't really say anything.

10:35I'm laughing because, you know, you shared with us earlier about John Ternus and Tim Cook being dressed identically. Like, you know, his vision is going to be whatever Tim Cook says the vision is. Is it going to be?

10:46Carol Massar:Is it? Is that what it's going to be? Yeah. No, I think that, I mean, he's going to come in and make major changes to the company. Just like, you know, Steve Jobs, arguably one of the greatest CEOs and visionaries of all time. Tim Cook came in in there. It's not like he took a wrecking ball, but he shook things up pretty quickly. uh, he was the one who instated the buyback program. He was the one who instated, uh, environmental initiatives. He was the one who instated tons of new product lines and, uh, you can bet Ternus is going to do the same thing. And so we'll see how long that takes, but he's not going to come on and say, he's going to do things differently than his predecessor.

11:17He's going to go on and say how incredible Tim Cook has done. And, uh, even if I do half of what you do, it'll be a success. Yeah. $5 trillion market cap, pretty close to it. Expectations were high going into this print. What's the question that if you were able to ask a question on the call today, what would it be? Uh, if I were able to answer or ask a question, I would straight up ask Ternus, what is your vision, uh, for the future of this company? How are you going to get to this next stage of growth? And how are you going to create an AI device strategy? Well, I mean, the good news is I don't get a question because the bad news is he wouldn't answer that.

11:52And, and, and just, I was keeping track. That was three questions. Well, you know, I'm a journalist. That's what these analysts do too.

11:57Carol Massar:But if he's not going to answer a question about vision and you kind of know that, what else would you want to know? I would want to drill down into his operational expertise and get his viewpoint as someone who's not from the operations department about the memory shortage, how long he sees that running for, and what work is going on internally to solve that other than just hiking prices.

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