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Apple, its money, and its margins

Apple reported Q4 earnings last night and as it warned, iPhone sales were bad. But the business looks just fine, and I’ve explored that in some detail.

Here are the two biggest things you shouldn’t miss.

iPhone XS Display

1. iPhone falls, as Tim Cook finally acknowledges high iPhone prices hurt:

  • iPhone sales were down 15% last quarter, or around one million less sold. Mostly in China.
  • The iPhone is still absolutely Apple’s major product, accounting for close to 70% of its total revenue.
  • Yes, it sold fewer phones, but people kept buying more expensive devices like the iPhone XS Max, which helped trim the gap.
  • CEO Tim Cook did admit that its high iPhone prices weighed on sales, but tried to angle away from that admission as well. Cook said “I do think that price is a factor,” but explained that it was more about overseas pricing, where prices in local currencies (eg. anyone not buying in US dollars) went up. it
  • To counteract that, Cook said Apple has begun lowering prices for its phones overseas, as we’ve seen in China. And Cook said it wasn’t a big deal in the US:
  • “We priced the iPhone XS in the U.S. the same as we’d priced the iPhone X a year ago. The iPhone XS Max, which was new, was a hundred dollars more than the XS, and then we priced the XR right in the middle of where the entry iPhone 8 and entry iPhone 8 Plus had been priced. So it’s actually a pretty small difference in the United States compared to last year,” he said.
  • Still, prices will drop elsewhere as Mashable explores.
  • And again, iPhone XR was confirmed as the top-selling iPhone in the quarter.
  • Apple said more than 900m iPhones are active in the world.

iPhone Apple Support

2. Buuut everything else at Apple was up 19%. Why that matters:

  • iPad sales were up, Mac sales were down, but Macs still outsell tablets. Quartz has some nice graphs.
  • This is what Apple really wanted investors and the media to concentrate on. Record revenues for Apple services, as Ars Technica detailed well.
  • For the first time, we also found out Apple’s actual margin on its services: 62.8%.
  • 62.8%!
  • I don’t know whether to be shocked, appalled, or just impressed.
  • Remember, “services” includes things like AppleCare, Apple Music, and Apple Pay, as well as iTunes, the App Store, Apple Music, and iCloud.
  • That kind of margin simply doesn’t exist elsewhere at this scale, with consumers.
  • Comparatively, Amazon’s AWS has a margin at about 25%, the same for Spotify. Microsoft’s commercial cloud offering is at 58%, but that’s an enterprise company charging other enterprises for mission-critical stuff. This is consumer level purchasing and revenue.
  • No wonder some banks have been slow to offer Apple Pay, and no wonder it costs a bomb to get your Apple device fixed by Apple. Yikes.
  • Oh, and also, with 900 million active iPhones, and a 62.8 margin on services, that’s a loooot of money to be made.
  • Hence the continuing noises we hear about an Apple gaming subscription service, an Apple TV service, Apple Music chugging along, and so on. That’s where the easiest cash comes from. Apple’s TV service might come as early as mid-April, says The Information.
  • Could that lead to an “Apple Prime” style bulk subscription service? Possibly. But not if that margin falls far.

Here’s everything else happening:

1. An extraordinary story broken by TechCrunch: Facebook pays teens and adults to install a VPN that spies on them with near “limitless access”. (TechCrunch). Facebook hid its identity, used intermediaries, kept it off the official App Store, and is paying peanuts. Facebook, within a few hours, announced it was shutting this down on iOS, while the “Research program” continues on Android. Why? We’ve asked. Also, @chronic breaks down Facebook’s statements in response.

2. Also, Samsung is now offering a 1TB storage chip for smartphones (AA).

3.  Pocophone F1 tested by DxOMark. It didn’t go particularly well. (AA). Big gains can be made here in a Poco F2 we’ll hopefully see in 2019.

4. Elon Musk’s private jet appears to make frivolous flights, including a huge number of 20 mile flights which basically serve to reposition the jet for faster airport access for Elon (WashPo).

5. Foxconn reconsidering plans to make LCD panels at Wisconsin plant (Reuters). And yes, this was predicted by those that know Foxconn.

6. PUBG’s new tool will show you kills caught on Twitch streams – PC only for now (Engadget).

7. Porsche’s new all-electric sports car: unlimited charging through the US, for three years (TechRadar).

8. Thought-to-speech breakthrough: Thinking thoughts and having them said out loud could change the lives of many soon, and create new tech later (Columbia University).

9. Japanese astronomers find tiniest Kuiper Belt object yet – using cheap ‘scopes and off-the-shelf CMOS cameras’ (The Register)

10. You get one wish, but 65% of the entire population also gets exactly what you wished for. What’s the wish? (r/askreddit)

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