Apple today announced financial results for its fiscal 2017 first quarter ended December 31, 2016. The Company posted all-time record quarterly revenue of $78.4 billion and all-time record quarterly earnings per diluted share of $3.36. These results compare to revenue of $75.9 billion and earnings per diluted share of $3.28 in the year-ago quarter.
There was a time when every quarter was a record for Apple, but after last year’s rough year of regression (following a record-smashing 2015), it wasn’t a sure thing that we’d see more of those for a while. But for the holiday quarter of calendar-year 2016, Apple beat its own advance guidance and reported a record revenue of $78.4 billion.
Below, we’ve compiled a graphical visualization of Apple’s Q1 2017 financial results.
Dr. Drang has moving averages.
Most Apple fiscal quarters are 13 weeks long. Once in a while, however, they need a 14 week quarter. You might call it a “leap quarter”. […] What a difference a week makes! Rather than record revenue, we have another down quarter for Apple. The lone bright spot was services; everything else was a year/year decrease.
Apple and commentators can keep saying the iPad is “the future of computing,” and it might still be. But we’re starting its seventh year in a few months, and sales peaked three years ago.
What if the iPad isn’t the future of computing?
I’d say the iPad’s biggest constraints are the OS’ file and window limitations, and the health of apps, both first- and third-party.
Unfortunately, these aren’t quick fixes, and the result of “fixing” them might just be reimplementing the Mac poorly.
The replacement-cycle problem: How many iPads are mostly used for video playback? Will they be replaced with a $300 iPad or $50 Fire Tablet?
On the flip side of that coin, what if Apple treated the iPad as the future of computing, instead of upscaling iPhone features to fit the iPad’s display, or hardly paying attention to it for an entire year? Would customers respond to an earnest attempt?
The peak years (2013 and 2014) were inflated because it was an untapped market. Steve Jobs was right, there was room for a new device in between a phone and a laptop, and the iPad was and remains an excellent product in that space. But people don’t need to keep buying new iPads. I think the replacement cycle is clearly much more like that of laptops than that of phones.
The other factor is that the conceptual space between phones and laptops has shrunk. iPhones have gotten a lot bigger, and MacBooks have gotten thinner and lighter.
The iPad has 85 percent of the market of tablets priced over $200. The important facts here: Apple’s not interested in selling a sub-$200 iPad, and so that means it’s doing spectacularly well in the market. The market’s just contracting. So this isn’t necessarily about the rejection of the iPad—it could be about flagging enthusiasm for the entire category of premium tablets.
The number of people buying the iPad for the first time is very strong, according to Cook, which means that the tablet market isn’t actually saturated.
So many basic computing tasks are convoluted and messy on the iPad we know today. Tasks like tweeting an image embedded into a webpage in Safari, playing background music without getting interrupted, collating a handful of attachments from different recipients and sending them off in a new mail message, and so many other things that people want to do every day. Heck, it’s still not possible to look at two emails side-by-side.
Update (2017-02-02): David Sparks:
In my mind, the issue is that users are not pushing the iPad harder to do more work for them, which would naturally end up in users wanting to buy newer, faster, and better iPads. Put simply, I think the issue is software.
At last year's iPad Pro event Apple made a big deal about how the iPad is powerful enough to replace a PC laptop. I believe for a lot of people that could be true. But it's not quite there yet because of the software limitations.
Update (2017-02-03): Jeff Johnson:
The inescapable conclusion is that even if the 14th week in FY2017 Q1 was one of the slowest weeks of the past two years, that’s still enough to account for the difference with FY2016 Q1. Ergo, FY2017 Q1 did not in fact represent a “return to growth”, as so many media outlets have incorrectly reported.
Here are the numbers on a weekly basis, with Luca’s $0.6B removed. Big change from positive to negative.
We can unravel it more if we like: You can back out a huge settlement benefit that hit the first quarter of FY16, which makes Services look even better (but doesn’t change the overall net). You can start to calculate out the channel and supply constraints and get a better sense of demand. In other words, you can make the numbers tell the story you want to tell, with charts to match, and slice it nine different ways.
But, for better or for worse, the window we get into Apple’s finances is based on its financial statements—and that means the quarters as Apple defines it.
I don’t think it’s quite right to ding the quarter by a full 8 percent — the entire last week started with Christmas day — but surely some sort of correction is necessary for year-over-year comparisons.
Update (2017-02-06): Jeff Johnson:
If there was a longer discussion of the extra week during the conference call, I didn't see it, and I think it's safe to say that most people didn't see it. The press release from Apple a half hour before the conference call did not mention the extra week. Naturally, the press all ran with the press release. And after the conference call, I did not see any of the press correct themselves. So if there was a more nuanced discussion of the year-year comparison, that information did not reach the public. The headlines were an all-time record quarter, Apple is doing great, the critics were wrong, etc.
What I can do, though, since the code is basically already written, is take a look backward and forward to see how common it is that an Apple fiscal quarter is something other than 13 weeks long.
What’s surprising to me is how slow iPad software has advanced in the seven years since its introduction. I’ve always thought of the iPad as the apotheosis of Steve Jobs’s conception of what a computer should be, what the Mac would have been in 1984 if the hardware were available. But think of what the Mac could do when it was seven years old[…]
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