00:23:15 · Ed Elson
[00:23:15] S4: We're back with Prof G Markets. Apple just reported its first earnings with John Ternus as CEO. Revenue rose 12% from a year ago to a $115,000,000,000, a record for the September quarter and ahead of analysts' estimates. Apple expects revenue to grow seven to 10% in the holiday quarter, better than Wall Street expected, but it also forecast lower profit margins. And on the call, turn us side stepped questions about how the company was handling AI and personalized agents. Meanwhile, the iPhone Duo rollout is off to a rocky start. Customers have reported that the $1,999 foldable phone cracked within hours or days of use. Apple is also struggling to make enough of them. The Duo went on sale on October 23 after the quarter ended, so its sales won't show up until next quarter's report. Apple shares are down more than 2% since earnings. Joining us to discuss Apple's earnings, the cracking duo, and how the company fits into the AI arms race, we're speaking with Patrick McGee, award winning journalist and author of Apple in China. Patrick, thank you for joining us. Let's start with the earnings themselves. Revenue was up 12% year over year, beat estimates pretty pretty good. What stood out to you in the report?
00:24:38 · Patrick McGee
[00:24:38] S8: Yeah. I don't think there was much to dislike about the quarter looking backward. I mean, this is a company that now has, what, $479,000,000,000 over the last twelve months. That's really remarkable. And you think the iPhone is, what, almost twenty years into its existence, and this is still the product driving more than half of revenue. And yet it's not the only game in town because you still have services growing by double digits. And the more the AI boom takes off, the more people are gonna be subscribing to services like ChatGPT or Claude through their iPhone. Right? And so Apple's still collecting quite a fee, despite being behind in its own software development, its own AI development. So, you know, I think these were pretty, wild... Well, not not... Sorry. I shouldn't say wild results. Just very respectable results for a company that's 50 years old, and, you know, I think has more than doubled its stock price in the last five years, and this is up something like 22% this year. For a company of that size and age, this is pretty remarkable, I would say.
00:25:32 · Ed Elson
[00:25:32] S4: Investors were kind of had a meh reaction, it seems like. It seems like there are a few issues. The the the, margins for the next quarter was... Seemed to be a problem, which appears to be a result of the massive increase in the price of memory, which is why Apple has had to increase the price of their own phones, and that seems to be easing into their margins. But, you know, there are also these other issues like the Duo, which we should probably get into, questions about AI, questions about Siri AI. I mean, what do you make of the near future for Apple, and and what do you think investors are are really reacting to after this report?
00:26:13 · Patrick McGee
[00:26:13] S8: For any earnings results, it's always more about the coming quarter than the last results, and that's especially true of Apple because the Christmas holiday season quarter is the biggest quarter by far for the for for the for the entire year. And in a sense, I think we've learned remarkably little. I mean, they offered fairly conservative guidance, so people could say it looks like, you know, things are softening versus the the the quarter that they just had. Right? So 12% revenue growth is what they just had, and I think they projected seven to 10%. And with people expecting something like 12%, that looks disappointing. I would just say, look. Apple's a conservative company that would rather sort of put out a low number and then beat it out of the park. So I basically read nothing into that. The Duo really is a fascinating thing because not only is it like a a a wild change to the iPhone, interface, but it costs $2,000. So if they're able to actually make a whole bunch of these, and and that's a that's a big issue, and then demand is really high, that could really be quite game changing for how much revenue they're pulling in. The problem, of course, is that you have all these cracked screens, basically on social media and then verified through reporting. But we don't know how extensive the problem is in the sense because the iPhone Duo has only been on sale for something like ten days. So, like, in the best case scenario, the problem of the iPhone Duo is an infant mortality problem. In other words, the screen breaks within a day or two of using it. What we don't know is if it might be something like a sleeper cell problem where months down the road, the same problem emerges, later. I suspect it's the former. In other words, if you have a problematic, a defective duo, it emerges as as a problem within twenty four or forty eight hours. But I just don't know that we'll have that data until they've been on sale or in the wild for, let's say, a month.
00:27:53 · Ed Elson
[00:27:53] S4: How bad has the rollout been in in your view? Because, I mean, just from my... I haven't gotten the phone, I haven't seen it, but I hear about it on social media, I see it on my timeline, and mostly it's people talking about it crapped, it breaks. The sense that I'm getting is that it's been a pretty shaky rollout so far, which seems very un Apple like to me. I mean, I think of Apple as the company that only ships products that are literally perfect and have no mistakes whatsoever. This is... This does not seem to be that product. So as sort of someone who's really studied the history of Apple, like, how does this rollout compare to previous product releases?
00:28:38 · Patrick McGee
[00:28:38] S8: Yeah. So, look, Apple really likes to push the boundaries on what's even possible in design and then in manufacturing. And so it's not at all uncommon to have defects in the early process of of of building out and scaling a new product. What's really strange here is that this is happening after they're shipping to consumers. Right? Usually, this is something Apple would have worked out months, before, at least weeks before they're actually shipping to consumers. So that's sort of the the big thing. As far as how big of a problem is this, I kind of think we have literally no data because we're dealing with anecdotes in terms of how many people are on social media. And let's say the number was just orders of magnitude higher than you and I thought. Let's say it's 10,000 defective units. Right? That would be absolutely remarkable. Well, not if they sold 2,000,000 in the first month. Right? Like, that would be a hilariously high yield rate. In other words, like, the number of defects as a percentage would be incredibly low, and yet Apple is just such a sort of, I don't know, iconic company producing such an iconic device that, it can still go wild on social media even if it's not actually that problematic. So, you know, I think where you're gonna see problems is the fact that they are having difficulties actually building these things. I don't wanna say they have... They're having difficulty meeting demands. That's sort of Apple's line, and yet I don't think it's actually clear that there's so much demand for this product. But if you have a defective Duo, you go back to the Apple Store and they frankly don't have one to give you as a replacement, then you've got a real problem on your hands. And that certainly happened in some instances, but in other instances, they just give you a new one. So I think time's gonna tell how problematic this is gonna be. And, of course, we are leading into the most important quarter for the year. So, it could be a major problem, but, honestly, it might just be basically over with. They they could have very well fixed the supplier issue at this point. And, at the end of the day, maybe it's only a few dozen units, and we move on.