00:12:11 · Carol Massar, Mark Gurman
[00:12:11] S0: Mark, one of the things I jumped out ahead of the earnings, as Tim and I were reading through the blog, your comments about how this is going to be the first for Apple with new CEO John Ternus in charge and, you know, what we might hear from him on the call. He's a product guy. So I'm just curious what you're going to be listening out for. [00:12:29] S1: Yeah, he gets all this credit for being a product person, but at the end of the day, Apple is a product company and nothing has changed here. All the initiatives that you see introduced over the past several weeks, these were all in the works for half a decade under Tim Cook. Obviously, Ternus was extremely deep in the thick of things, but the reality is that nothing is changing a ton at Apple anymore. Because of this, at least for now, I have reported, though, he wants the company to run faster, wants to run leaner. There have been a lot of under the radar layoffs and less under the radar layoffs at Apple. There's been cost cutting and I expect more cost cutting to happen. And so the guidance definitely is going to be the most interesting part here. Why are they looking at all these layoffs? Why are they looking at the cost cutting? What does that mean for revenue and what they're expecting there?
00:12:29 · Mark Gurman, Tim Stenovec
[00:12:29] S1: Yeah, he gets all this credit for being a product person, but at the end of the day, Apple is a product company and nothing has changed here. All the initiatives that you see introduced over the past several weeks, these were all in the works for half a decade under Tim Cook. Obviously, Ternus was extremely deep in the thick of things, but the reality is that nothing is changing a ton at Apple anymore. Because of this, at least for now, I have reported, though, he wants the company to run faster, wants to run leaner. There have been a lot of under the radar layoffs and less under the radar layoffs at Apple. There's been cost cutting and I expect more cost cutting to happen. And so the guidance definitely is going to be the most interesting part here. Why are they looking at all these layoffs? Why are they looking at the cost cutting? What does that mean for revenue and what they're expecting there? [00:13:13] S2: Hey, Mark, let's go to the AI story here. Apple's up roughly 25%. What AI story? Okay, so, well, that's the point. So Apple's up roughly 25%. It's best performing Mag 7 going into today's print, beating by far Microsoft down up 10%. So not only is it beating the greater index, but it's like the only one that's beating the greater index, right? So... Apple has been punished in the past and criticized for not having an AI strategy. But what that means is it does have a free cash flow position that is enviable if you are spending a lot of your cash right now, like some of these hyperscalers are. Am I looking at this incorrectly?
00:13:13 · Tim Stenovec, Mark Gurman, Carol Massar
[00:13:13] S2: Hey, Mark, let's go to the AI story here. Apple's up roughly 25%. What AI story? Okay, so, well, that's the point. So Apple's up roughly 25%. It's best performing Mag 7 going into today's print, beating by far Microsoft down up 10%. So not only is it beating the greater index, but it's like the only one that's beating the greater index, right? So... Apple has been punished in the past and criticized for not having an AI strategy. But what that means is it does have a free cash flow position that is enviable if you are spending a lot of your cash right now, like some of these hyperscalers are. Am I looking at this incorrectly? [00:13:58] S1: No, I think you're looking at the most optimistic view here. But at the same time, we've seen zero evidence from Apple that they're going to be able to successfully take advantage of that cash holding and trade that in for a strong AI strategy. I've been using OpenAI ChatGPT. over the weekend. I have completely immersed myself in it. Apple has nothing close. It's a game changer. It's literally like an all-day assistant that's like a human that you can have. [00:14:21] S2: This is the agent. This is their answer to Muse? [00:14:24] S1: This is their agent, yes. Answer to Claude, answer to Muse. It's been pretty terrific. And Siri AI is operating nowhere close. [00:14:34] S0: What about Siri, the Siri AI chatbot? Have you played with it? Do you like it?
00:14:34 · Carol Massar, Mark Gurman
[00:14:34] S0: What about Siri, the Siri AI chatbot? Have you played with it? Do you like it? [00:14:39] S1: Is it, yeah. Siri AI is fantastic for 90% of use cases. You ask it questions, it uses that Gemini model to get you the answers. You need to get something done on your phone, it can get something done on your phone. But in terms of replicating a real world assistant, it's not that. It's basically what the original vision of Siri was 15 years ago, but finally executed correctly. That's an amazing thing. It means that the core AI product that Apple has finally works and That means they have an excellent foundation. Now they have to actually build something on top of it. Services. [00:15:12] S0: This has always been an important revenue generator, and it looks like it's slowing. How problematic is that, or what's the question to ask of John Ternus and the C-suite about that? [00:15:25] S1: Well, the question is why, and one of the answers is because Google searches are down because of AI, and a big chunk of the revenue Apple gets from services is a revenue share from Google search done in Safari. And as people move to the Gemini app, as people move towards the ChatGPT app or the Cloud app or the Muse app, or even Siri AI to get things done that they normally would do in a search engine, that services revenue is going to come down. What Apple needs to do is figure out a way to make up for that revenue loss by monetizing search on its platforms, or shall I say AI search on its platforms, because they're not doing that.
00:15:25 · Mark Gurman, Tim Stenovec, Carol Massar
[00:15:25] S1: Well, the question is why, and one of the answers is because Google searches are down because of AI, and a big chunk of the revenue Apple gets from services is a revenue share from Google search done in Safari. And as people move to the Gemini app, as people move towards the ChatGPT app or the Cloud app or the Muse app, or even Siri AI to get things done that they normally would do in a search engine, that services revenue is going to come down. What Apple needs to do is figure out a way to make up for that revenue loss by monetizing search on its platforms, or shall I say AI search on its platforms, because they're not doing that. [00:15:58] S2: We're speaking with Mark Gurman. He's Bloomberg News Managing Editor for Global Consumer Tech. We're in the midst of Apple's numbers. That call does start in just about 14 minutes. Mark's going to go to that in a few minutes. We do have a few more minutes with Mark, but to catch everybody up, if you are just joining us, the company reported revenue gains of 12% to $ 114. 5 billion. That was a beat on the top line. China sales, though, fell short of analysts' estimates. iPhone revenue climbed 17% to $ 57. 6 billion. The shares in the after hours, they're flat right now. They fell, they moved higher, and now they're flat. [00:16:31] S0: Yeah, stock is really flat. So, Mark, you know, we've always had high expectations for, like, what's next from Apple. Where do they go next from here?
00:16:31 · Carol Massar, Mark Gurman, Tim Stenovec
[00:16:31] S0: Yeah, stock is really flat. So, Mark, you know, we've always had high expectations for, like, what's next from Apple. Where do they go next from here? [00:16:42] S1: Well, next year is going to be an extremely strong year in terms of AI wearables. So where they're excelling is AI hardware. Smart glasses are going to be there. The AirPods with cameras, those have been off delayed. We're going to see those. The touchscreen MacBook Pro goes on sale Friday. I'm excited for that as lack of revolutionary as it is. The home view goes on sale in a couple of weeks. I'm excited for that. So there's a chock full product pipeline here. The big question is 2028, 2029, 2030 and beyond. Things like robotics, things like augmented reality glasses. Are they going to take another swing? at autonomy? Those are the big questions for the company's future and certainly things that you will not hear from John Ternus today. All right. [00:17:21] S0: So we're all in on the elections, as you can imagine. How does that, you know, Tim Cook has been a master, right, in terms of really overseeing things with Washington and. [00:17:31] S2: Just kind of- With Beijing, too. [00:17:33] S0: Navigating all of it pretty well, to say the least. But how does the midterm outcome, you know, kind of impact this company.