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>> Bloomberg Audio Studios. Podcasts,

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>> This is a breaking news update from

Bloomberg.

Instant reaction and analysis [music]

from our 3,000 journalists and analysts

around the world.

Apple's overall second quarter revenue

beat analyst estimates, as did earnings

per share. In particular, China sales

topping expectations. iPhone revenue

matched the average analyst estimates,

and this was a big headline. The company

authorized up to a $100 billion share

buyback and boosted its dividend to 27

cents a share. Doing those big buybacks

is not unusual from these companies.

Right now talking to our Anurag Rana,

Bloomberg Intelligence senior technology

analyst out there in Chicago, and out

there in San Francisco is Ed Ludlow,

co-host of BTech. We continue to track

the stock reaction, Tim Pierre. Yeah,

I'm just going through Apple's press

release,

going seeing if there's anything that

that we missed. Extraordinary iPhone

demand.

>> Yeah, exactly. Does that I feel like

we're talking about the Federal Reserve

in the Fed's language here. Quote,

"Extraordinary." What does that mean?

Exactly so, that's exactly the thought

that went through my head. How much does

language in a statement matter? And so

I'm actually going to throw that

question to

to Anurag, but basically that is the

language, extraordinary demand. But

they're also basically specifically

calling out the 17E.

Is that enough, Anurag, to infer an

upgrade cycle?

Just that that one sentence in a

statement? See, if you go back and look

at the previous quarter, we saw Apple

iPhones doing really well. This quarter

has done well. We think the consensus

of, you know, roughly around 8% increase

in iPhone may not be enough. I mean,

they may have to raise those numbers,

but we'll only find out about on the

conference call because they don't give

guidance on the there

in the release. So, you know, I'm

expecting now based on what I read, that

there is a high likelihood that they

will talk about another strong iPhone

quarter.

You know, that's the

upcoming quarter. Anurag, you said too

in our preview before these numbers, you

said Apple's the only one who has not

taken up prices because of memory

shortages,

and it, you know, has given them an

opportunity to gain share. Should they

continue to do that in your view, not

raise prices and go after share? I mean,

is China indicative of that, or is that

something else?

100% especially if the gross margins

were 49, which is 200 basis points above

last year. Absolutely because it looks

like they're doing better deals with

their memory providers than the rest of

them. Now, I could be completely wrong

and on the conference call they say,

"Well, you know, memory prices is

hurting us and we may take some prices."

But as of now, what I see is them

gaining market share.

Ed,

same thing. You know, your thoughts in

terms of what Anurag said in terms of

pricing versus market share. This is,

you know, the potential for a little bit

of a grab here for Apple in some

markets. Yeah,

I mean, you know, historically Apple,

which has a relatively recent CFO in the

seat, has been the master of the bottom

line, right? And so when it comes to

memory, we're fixated on margins.

Apple's price strategy has been less

controversial, should we say? Generation

to generation, they they would argue

they keep the iPhone entry-level price

static, or even if it goes higher, they

give you more

memory for storage for that for that

number. So, the way that I look at it is

like is there any evidence that they

share with with the investor base about

consumer behavior? In other words, like

right now, is there a macro concern

about the health of consumers in

different markets? If you read down the

release, they talk about strength in all

geographic segments, but actually, if

they gave a bit more granularity of

like, "Okay, well, China's good. How's

How's things going in Europe, North

America, LatAm,

Southeast Asia?" That That to me is kind

of interesting.

>> Ed, is what Is that where the Neo comes

in? And that's sort of like a gateway

drug

to get more people into the iOS

ecosystem? The MacBook Neo though, like

remember, it's different to the iPhone.

It's It's an entrant into a market where

Apple's not really played. Like a

Chromebook category. Yeah, exactly.

Lower price point, go after students,

people in higher education. I would

imagine though, I would imagine those

people though, Ed, would like experience

using the interface of a Mac and then

say, "Wait a second, I don't have an

iPhone right now, but I want to be able

to use iMessage as well as I, you know,

could on this Mac, would I buy an

iPhone?" I don't know. I'm just

especially in other parts of the world.

I don't know.

I I don't have anything intelligent to

say about that other than, you know,

what's interesting about the Neo is the

processor is basically the same as the

latest iPhone. You know, and and that is

one way that they were able to get it at

that price point. I don't I don't know

how Anurag sees the Neo as like a sort

of category-defining piece of

technology.

But again, like I while while you guys

chat, I'll go back and look at the Mac

numbers overall and see what we learned

about everything outside of the iPhone

and just from the statement alone.

So, I mean, but then I look at the the

lower-end Mac. I frankly, I mean,

whether you're a student or you are in

emerging market, this is a very good

place for you to get in. Macs are much

more stable than Windows devices. You

know, I've had only two Macs in the last

18 years. I mean, it's just unbelievably

stable. Um, I mean, it's you know, it's

a completely different ecosystem. But

what you what you actually do is you get

more people to buy your services. And

remember, that's a high-margin business.

>> There it is. That's 75% gross margins,

whether it's the App Store or, you know,

AppleCare, whatever it is. So, I think

the going down the curve and and and

having an entry-level product is

extremely important, especially because

the growth is only going to come from

emerging markets. It's not going to come

from Europe, Western Europe, and it's

not going to come from the US. So, I

think it's a very good strategy. I want

to just I'm looking at our live blog,

guys, and Mark Gurman weighing in. We're

going to hear from Mark shortly, too.

He's going to join this conversation,

but he points out, I mean, the stock's

going back and forth between green and

red.

He says the main reasons are

likely that although the iPhone sold

extremely well, it didn't blow out Wall

Street expectations. Instead, it met

them. And he says the other factor is

the weaker than anticipated revenue

coming from the Americas region, 45.1

billion versus forecast of 45.8 billion.

the share price in the aftermarket. It's

investors kind of going back and forth.

I thought it was going to be like maybe

settle in and say, "It seems like, you

know, investors like it. It's solid.

They're okay. Let's move forward." But

uh Well,

let's remember that we started this show

and segment with Bloomberg's Mark

Gurman, who leads our coverage of

consumer technology and is generally

regarded as the leading journalist

covering Apple on planet Earth, saying

this was not going to be about the

transition of CEO, and it was not going

to be about learning about John Ternus

as a CEO, what his strategy is.

I don't know, guys. To me, this seems

like treading water for an earnings

call. Yeah, come on in, Anurag. Yes.

Save me.

Apple is trading at 30 times earnings.

Microsoft is at 22.

Google's at 29, even after blowout

results. So, even after all of this,

Apple's still more expensive than them.

Why?

>> Um, yeah. And does it warrant it based

on this this result, Anurag, or what?

So, I think it's a lot of has to do with

the business model of the company. This

is something we go back to. This is a

far more stable business model with,

imagine, 3% of revenues going into CapEx

compared to 40-45 for Microsoft. They

are not raising CapEx. They have an

absolutely stellar ecosystem of

products. And and guess what? Whoever

has the best model, they're going to pay

them a little bit of money to get them

on their on their platform. So, it's a

completely different business model than

than the other Mac 7.

And people like stability. People like

the free cash flow nature of it. They're

going to spend they're going to generate

over $100 billion in free cash flow and

they're going to buy back their stock

with it. They're not going to build data

centers with it.

Can I read you something Anurag and then

you can respond to it, okay? Uh I'm

paraphrasing.

Other companies have a clearer AI story

and very different businesses to Apple.

Apple's bottom of the year was March 30.

Apple trades at a premium despite slower

growth than its peers and the stock

trading flat year-to-date reflects

anxiety on component costs and memory.

Do you know who wrote that?

It was me.

>> [laughter]

>> 4:26 p.m. Eastern time.

What do you make it What do you make of

that? It sounds like we agree.

>> right. Yeah, absolutely right. But but

you know, I I all I'm saying is you

know, when you look at a company like an

Apple or in a Costco, it really is a

different business model compared to all

the others. And I think most people

forget that. This is something that's

going to be around for a very long time,

spits out of a lot of cash even if in a

in a in a quarter they don't grow, does

not matter. The free cash flow still

comes in and they keep on buying back

more shares.

Yeah, right. So, they you know,

investors are happy. Investors are

happy.

Um you know, so top of mind you guys

when we get to that call with analysts

and investors

Anurag, is it memory prices? Is it what

else?

Memory prices, what's the iPhone story

look like in the next quarter and what

kind of new products can we see during

the September. There will be questions

on Siri, but I think they will punt it

and say, well, log in on June 8th and

see it. But to be very honest, thanks to

Mark Gurman, we already know what's

going to happen on June 8th.

Yeah, I know. You got to read read Mark

to understand everything and not be not

be surprised with anything.

>> to understand me and answer me back.

>> What do questions like

you know, a silly little address. Like

it seems so far behind. And

>> [laughter]

>> you agree? Is it a Siri? I mean, it's

funny. Mark has also shared with us you

know, a lot of the products that the new

CEO, I think he did a story about a

pipeline of 10 major products whether

it's a smart home hub, table top robot,

security device, smart glasses, AI

AirPods, a pendant. I mean, there's a

lot of stuff. Are we going to get some

some more details here? Well, so like

that is just not how how the earnings

call works, right? Yes, you get

granularity and detail. Tim Cook, you

know, I think he he's the kind of CEO

that goes, well, I'm not an economist,

but and we'll sort of go into the state

of the world and

Kevin Parikh, the CFO is very good at

explaining all of the the plus and minus

factors of the quarter, but those shiny

things, you know, Apple intelligence,

improvement on Siri, handset innovation,

foldable, you know, June is WWDC, the

annual developers conference. September

takes us into the new hardware season.

Tonight's not it, you know? And so, you

just need to find out the sort of plain

balance sheet driven factors, which

sounds boring for the audience maybe,

but that that's so key when you cover a

company of Apple's scale. Well, I get I

get that cuz you're looking at the stock

now down about 1%. So, investors are

obviously looking for a little bit more

detail or a lot more detail when it

comes to what's on the balance sheet. Ed

Ludlow, we know you need to go at this

moment. Thank you so much, co-host of

BTech on Bloomberg Television at 11:00

a.m. Monday through Friday

on Bloomberg Television. Anurag's going

to stick around, which we are grateful

for. We were just having a discussion

about margins Anurag and I know that's

front and center for you. I asked you

that was the most important number to

see. Have you had a chance to do the

back of the envelope there and and and

get the results?

Yeah, the gross margins are up about 220

basis points. So, that's a very good

number. Now, that could just be a mix

shift towards services, but I think the

number one call or the question on the

call has to be what's what are memory

prices doing to all their products and

up till how long can we anticipate these

margins actually holding up? Because

when I looked at consensus even before

the call

for the next two quarters, consensus is

not anticipating any degradation in

margins, which was a bit surprising to

me because we all know a memory prices

are through the roof right now.

So, help us out here. Is this I'm just

want to make sure we're looking at the

right place and in terms cuz it's not

broken out in the release, but were were

gross were gross margins

47.9%?

Uh 49.2 compared to 47 last

>> Okay. 40 compared to 47 last quarter.

Okay, thank you. Yeah, last year same

quarter. Okay. Obviously, I'm not

looking at the right place. Okay, we're

looking at on the FA function on the

Bloomberg. Lot [snorts] of numbers, lot

of numbers.

>> This is why we have Anurag with us.

>> Well, it's always kind of massive

numbers, I feel like with Apple overall,

which is kind of interesting. I want to

go back to the China revenue story, that

20.5 billion cuz it's been an area where

they've struggled a little bit.

Does this indicate a better trend line

Anurag in your view going forward or

we'll have to wait and see?

So, two things happened. One is easier

comparison. When you really had a bad

year, you know, you're going to go into

the next year with a baseline that's

low. So, that's one. Second, you are

also looking at promotions in that

geography sometimes. It's not like all

the time, but you know, but when your

competitor is raising prices,

you take your base model and you push it

as hard as you can and you actually get

you know, I would be very surprised if

they don't say that China iPhone

revenue, which they don't give frankly,

wasn't up more than 20, 25%. Like I

would be very surprised if that's not

the number.

Why?

Because you know, one of the things as I

said, the base was so small. They I

mean, in a sense, the comparison was

easier and they have been extremely

aggressive in terms of marketing that

product while the others have not been.

Okay. Okay. Listen, you know, can you

talk to us a little bit about remind us

just guidance-wise what Apple tells us

on the call? So, So, they would talk

typically talk about a handful of

things. One, they would give overall

guidance in terms of total revenue

growth. Sometimes they would give iPhone

guidance, sometimes they won't. Last

time they did give some indication of

where it could be. They talk about gross

margins in total. They don't really go

down on a segment level.

And again, I think the number that

usually is consistent is total revenue

line, but the others, you know, things

do bounce around, but I think the

the soft commentary around pricing of

memory, I think is is going to be one of

the most important factors. How much

leverage though Anurag? I think we've

talked about this with you. You know,

they have this incredible supply chain.

They're massive. They're a big customer

and when it comes to the supply chain,

those who are supplying the components,

they listen to the biggest and the

loudest.

You know, I been surprised because yes,

they are the biggest and they are, but

you know, when something goes up 50%,

75%, 100%,

you know, you you you understand even

the person who's selling it cannot do

anything about it. So, you have to eat

up some of the cost. So, I think you

know, that is probably why I was saying

I was a bit surprised when I looked at

margins for the next quarter. They still

look healthy in a sense. I'm not seeing

any degradation there. That's an area

where we think there could have been

hit. We had calculated it a while ago

that you know, that that number could be

anywhere between 2 to 3% or somewhere

you know, in in that range.

But again, we are not seeing any of that

at this point.

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