Instant Reaction: Apple Delivers Upbeat Forecast

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1:02Bloomberg 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. Just want to get to Apple. Let's get to it. First quarter revenue,$143.76 billion. Yes, a big beat. $138.4 billion was what the street was expecting. First quarter EPS, also a big beat,$2.84 a share. The street estimate was for$2.68 a share. Greater China, they've been struggling there. Revenue in Greater China,$25.53 billion, folks. That is a beat. $21.82 billion was what the street was expecting. That's a new all-time EPS record, though, overall.

1:52And the install base now has more than 2.5 billion active devices. Well, 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.

2:31China is back. You have a big beat on the iPhone in particular,$85 billion quarter. It's 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 could 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.

3:13But they just bought themselves a very long time with this just insanely great quarter. So 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? uh they buy uh components and memory components quarters and months in advance sometimes years in advance they have these deals struck uh so they're working off of of numbers and pricing and materials here uh that really give them extensive pricing power over competitors so we'll hear more about that on the call today but seems like they're fine mark i love this i mean i'm looking at our live blog so you must have like 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.

4:18You 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. Like, 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. I said long-term, right? And I'm talking really long, the really long term here, right? Like at some point, there is going to be a need to fulfill these AI desires and And, you know, they're going to have to figure that out.

5:01Well, Anurag Ranov, 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. And 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. Well, it's not that they're waiting it out. It's that they have no choice. They have nothing internal. So it's not that they're waiting it out. is that they need to do it.

5:30And 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. They couldn't work with OpenAI because they're hardcore competitors at this point. So Google is 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.

6:0421.82 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. It was the iPhone 17. It's the color orange. Oh, it's the color orange. It's that easy? No, it's 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.

6:40And 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. Hey, 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 movement, 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, it's just one piece of the puzzle.

7:18Mark, another story that you reported on this week, Apple's Tim Cook calls for a de-escalation after Alex Preddy's shooting in Minneapolis. There'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.

8:04I think they were looking for Tim Cook to take some sort of stand here, and he really didn't. You 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. Great stuff, as always. And we'll be looking for your reporting. He is Mark German. Thank you, Mark. Managing editor for Global Consumer Tech for Bloomberg News out there on the West Coast.

8:41Let'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 Gurman is out. Sales trouncing estimates after iPhone fuels 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? Think 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.

9:18Yeah. You know, 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 9 % above consensus, even the top end of the most bullish ranges on how this iPhone would do were only about$81 billion. I think it came in above$85 billion. So they've done something either the phone has got traction or they've done something smart with the timing of it and it's sold well um the 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 there 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.

10:10I 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 badly. Everyone knows who you're talking about. It's okay. Okay. I'll stick to my guns. And then Apple comes around with earnings and the opposite has been true on more than one occasion. But this occasion, like the third-party data, this sort of incremental and anecdotal of people queuing up for the iPhone 17 in all markets, but like greater China, it was kind of there. So, so that's interesting. Um, where else do you want to go? I mean, this, you know, this is Apple there, there's anything we want to go to AI because you want to ask me about the thing that they have nothing to say about right now.

10:53Sure. Every analyst is really pointed to that. I mean, we can, we can talk about the relationship that Apple has with, 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? I go back to basics and 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.

11:41You 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? It'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. That's not how Apple operates. Yeah. It's just, 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.

12:23We 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? 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, you know, that I didn't forgive me, because I was blogging, I didn't hear what you guys were talking about just before. But 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 in may of last year amid well in may of last year i was sat next to the u2 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 that the the the only observation i'll make in line with that is that this release also says nothing about the environment for memory chips and And, you know, like memory chip prices are very high.

13:24But their margin was pretty good, right? And their margins were pretty good. And there's a scarcity. And the principal difference is like, this is why it's so fun to cover hardware companies. And it's a privilege to be a technology journalist. When you get access to all these companies 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, you know, will privately just agonize over how difficult it is to convince suppliers to give them the things they need.

14:02So on the call that that will come up, you know, the sell side are likely to ask about it. But, you know, there are 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 well uh it's not just that that memory prices are high the reason that memory prices are high is that historically memory dram and and flash memory um 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.

14:51And it is correct that Apple's supply chain teams are its secret sauce. 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 have 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.

15:26So the first thing Mark said to us, I don't know you were blogging, Ed, and 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 nor am i 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.

16:15He was crystal clear in that reporting that there is no suggestion that Tim Cook being replaced or stepping down or retiring is imminent. You know, 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, you know, 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.

17:00This 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 and 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.

17:31Apple buys is really AI startup that interprets facial movements. He's like, you know, interesting will help in terms of, I guess, product development, but not necessarily a big, big deal. 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 open AI, expand ties. this 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.

18:16What does it mean that Amazon could invest this much money? Well, Amazon probably can invest that much money. You know, 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. Amazon, 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 build on top of existing models. So the financials are there.

18:52If people are watching that are investors in those companies, phone me, explain the dilution to me, explain the post and pre-money valuation. But OpenAI needs capital. It is coming from multiple places, apparently. 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 OpenAI entity. The scale is just otherworldly, the amounts of money that we're talking about right now.

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