Apple 2023 fiscal first quarter — the iPhone and iPad angle

Apple 2023 fiscal first quarter — the iPhone and iPad angle

Apple logo 48A few days ago, Apple released the results for its 2023 fiscal first quarter (which ran from September 25, 2022, to December 31, 2022, and did not actually include any days from calendar year 2023) and held a call with analysts to discuss the results. This is typically Apple’s best quarter of the year because it includes holiday sales.  One year ago, it was the best quarter in the history of the company, with an all-time revenue record of $123.9 billion.  This  year, it was the second best quarter in the history of the company, with revenue of $117.2 billion. 

Most of us would be happy to report over $100 billion in revenue in a quarter, and most of us would be happy to report a second best quarter ever.  But for most of the time since the iPhone came around, Apple’s fiscal first quarters have been better every year.  Why not this year?  Apple identified three reasons.  First, Apple pointed to “foreign exchange headwinds.”  In countries like China, Apple sold more this year than last year.  But because of the strength of the U.S. Dollar, when China sales are converted to U.S. currency, the revenue from China was actually down compared to last year.  Second, Apple pointed to COVID shutdowns at the factory (also in China) that made the iPhones.  And third, Apple pointed to the overall macroeconomic conditions: inflation, war in Eastern Europe, the pandemic, and other issues that cause people around the world to spend less money now than they used to.  As you can see, Apple’s overall message was that Apple itself is doing a great job making wonderful products that people want to buy, but external factors softened the overall revenue.  I think Apple makes some good points, but others will see doom-and-gloom because it wasn’t the best quarter ever.

As always, I’m not all that interested in the financial details.  What interests me is that this is one of four times a year when Apple answers questions from a bunch of analysts, so I’m always curious to see what Apple has to say about the iPhone and iPad and related technologies.  If you want to get all of the nitty-gritty details, you can listen to the audio from the announcement conference call on the Apple website, or you can read a transcript of the call prepared by Jason Snell of Six Colors.  Snell also created a number of useful charts that put Apple’s financial announcements in perspective over time.  Apple’s official press release is here.  Here are the items that stood out to me.

iPhone

  • iPhone revenue was $65.8 billion.  That is down from $71.6 billion a year ago, but it is still the second-best iPhone quarter ever, up just slightly from $65.6 billion two years ago.
  • Apple CFO Luca Maestri said that the installed base of active iPhones is at an all-time high across all geographic segments.
  • Apple CEO Tim Cook said that the shutdown of factors in China due to COVID significantly impacted the supply of iPhone 14 Pro and iPhone 14 Pro Max, and this lasted through most of December.  We all saw how difficult it was to get a high-end iPhone if you wanted one in your hands by Christmas or Hanukah.  Fortunately, Apple has gotten past that.  Right now, you can order an iPhone 14 Pro and—in many big cities—have it in your hands only two hours later.
  • Cook mentioned the Emergency SOS via Satellite feature that is available with all iPhone 14 models, noting that “it is incredibly heartening to get emails from people describing the life-saving impact our new safety features have had on them.”
  • Cook said that many people “are willing to really stretch to get the best” smartphone they can afford because it is so “integral into people’s lives.”  “It contains their contacts and their health information and their banking information and their smart home and so many different parts of their lives, it’s the payment vehicle for many people.”  I interpreted that statement as an explanation of why the Pro models of the iPhone are so popular, but Mark Gurman of Bloomberg speculates that Cook could be signaling that Apple has plans for an even higher priced iPhone model in the future—an iPhone Ultra?—to sell an even more expensive iPhone to those willing to pay more.

iPad

  • For much of Apple, last quarter was about getting the silver medal, but for the iPad, this was the gold medal quarter, the best iPad quarter of all time.  iPad revenue grew 30% to $9.4 billion.
  • Maestri provided two reasons for the great iPad quarter.  First, this time last year, Apple experienced significant supply constraints, while this year they had enough supply to meet demand.  Second, there was a lot of interest in the new iPad and iPad Pro models introduced last quarter.
  • Apple no longer reveals the specific number of iPads sold or in use, but Maestri did say that the iPad installed base reached a new all-time high.

Other

  • If you are old enough to remember the iPod, you may also remember people talking bout the “iPod halo effect,” the idea that once a customer bought an iPod and loved it, they would have more interest in buying other Apple products like a Mac computer.  More recently, Apple has been talking about the number of active devices.  If you own an iPhone and then replace it with another iPhone, that doesn’t add to the total number of active devices (unless you give your old iPhone to someone else).  But as people who already own one or more Apple products buy even more Apple products, and as other people buy their first Apple product, Apple’s potential future growth increases.  Folks with even more Apple products are even more a part of the Apple ecosystem and more likely to purchase services from Apple such as Apple TV+ or Fitness+.  And of course, customers buying their first Apple product have the potential to spend even more money on Apple products and services in the future.  Cook was proud to mention the number of active devices when he spoke to analysts a few days ago because he announced a new milestone: two billion active devices.  It was only seven years ago that Apple announced that it had one billion active devices.  Apple was founded on April 1, 1976, so it took Apple almost 40 years to sell the first billion devices, but only 7 years to sell the second billion devices.  You can do the math and see that this paints a picture of a bright future for Apple.
  • Apple saw $20.8 billion in revenue from services in this past quarter, the highest ever.  This included records in many services categories including cloud services, payment services, and music.
  • After Steve Jobs died in 2011 and Tim Cook took over the company, one of the changes instituted by Cook was a Giving program.  Cook announced that during those 11 years, more than $880 million was donated to humanitarian efforts, disaster relief, childhood education, and more.
  • When asked about Artificial Intelligence, Cook said that it is a “major focus” of Apple because of the ways that “it can enrich customers’ lives.”  He said that “you can look no further than some of the things that we announced in the Fall with crash detection and fall detection or back a ways with ECG.  I mean, these things have literally saved people’s lives.  And so we see an enormous potential in this space to affect virtually everything we do.  It’s obviously a horizontal technology, not a vertical, and so it will affect every product and every service that we have.”

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