Apple, the corporate world’s biggest target for leaks and rumourmongers, has not managed to produce any real surprises at its product launches for years.
Yet when Apple executives dropped “one more thing” on Thursday, investors and analysts were stunned.
Its trick was not introducing a product to the world but making something vanish. The world’s most valuable company will no longer tell investors and analysts how many iPhones, iPads or Macs it sells.
For the best part of a decade, few figures have had the power to move billions of dollars of investors’ money as quickly as the number of iPhones Apple sold in a quarter.
But finance chief Luca Maestri insisted on Thursday that a “unit of sale is less relevant today than it was in the past”. Because the company ships such a wide range of iPhone and iPad models at several different prices, shareholders should focus on revenues and profit margins, he said.
Apple will now disclose its dollar revenues and cost of sales for each device category every quarter instead of detailing the number of units shipped down to the nearest thousand.
Investors seem unconvinced. The move helped to wipe almost $70bn from the company’s market capitalisation, briefly dipping below the $1tn mark it surpassed in August during after-hours trading on Thursday. Shares fell by almost 7 per cent on Friday morning to $207.64.
“It’s obviously going to create questions about whether Apple can ever return to the number of units it sold in 2015,” said Walt Piecyk, telecoms analyst at BTIG Research, pointing to Apple’s lower-than-expected guidance for the fourth quarter. “Units haven’t been relevant for three years. The stock seems to have done well when they reported those numbers.”
Apple’s outlook indicates the biggest year-on-year drop in iPhone unit sales in several quarters, analysts say, but now investors will never know for sure.
“There will probably be a lot of pushback about not giving iPhone unit data,” Jim Suva, analyst at Citi, told Mr Maestri on Thursday’s earnings call. “Some people may fear that this means that iPhone units are going to start going negative year-over-year. It’s easier to talk about great things and not talk about the things that are not going so great.”
Mr Maestri responded: “I can reassure you that it is our objective to grow unit sales for every product category that we have.”
But Wayne Lam, analyst at IHS Markit, suggested that might be a “half truth”.
“This is a market that has peaked,” he said, referring to smartphones in general. Apple has only managed to maintain its growth by increasing prices, first with the $1,000 iPhone X and again in September with the $1,100 iPhone XS Max.
Thursday’s figures pointed to the success of that strategy, as the average selling price of an iPhone increased from $618 a year ago to $793 in the three months to September. That drove Apple’s iPhone revenues up by 29 per cent, even though unit volumes were flat compared to the same period a year ago.
“They are setting the entry price higher and higher — and consumers are following them,” said Mr Lam. “[Customers] don’t really have an alternative to this quality of ecosystem and user experience.”
Price hikes were also in evidence earlier this week, when Apple introduced iPads and MacBook laptops that were as much as 20 per cent more expensive than their predecessors.
By removing unit figures, analysts will no longer be able to calculate how their average selling prices have changed. Mr Piecyk believes that the concurrent trend of increased prices and reduced financial disclosures looks like an attempt by Apple to bury the narrative that it is exploiting its loyal and often wealthy customers.
“It’s certainly not a good look for Apple in the eyes of consumers when analysts are quoting ASPs that are rising by double digits [percentage points],” he said. “By not reporting units, it effectively removes the discussion of rising prices from mainstream media stories.”
It also obscures the answer to a key question for Apple investors: how much further can customers’ tolerance for price increases be stretched?
Apple’s performance in less affluent markets may provide a clue.
Chief executive Tim Cook on Thursday blamed a handful of emerging markets, including Turkey, India, Brazil and Russia, for its weaker outlook on holiday sales, even as he insisted he “could not be more bullish about Apple’s future”. Sales in India were flat year on year while Brazil fell.
Mr Cook pinned the slowdown on “a bit of a different story” in each market, but he did point out that currency fluctuations had prompted Apple to raise prices even further in the countries — “and those markets are not growing the way we would like to see”.
Apple has never broken out iPhone sales in particular regions, though it sometimes indicates growth rates in markets where its products are selling well. Defending the reduced transparency, Mr Maestri pointed out that Apple’s competitors such as Google or Samsung already provide far fewer details about their sales.
While most Wall Street analysts lamented that Apple had just made their job much harder, some were supportive.
“No unit sales data on Apple products is long overdue,” said analyst Horace Dediu of Asymco. “The information is too important to share. It signals to competitors and it fixated analysts on the wrong metrics. What you measure determines what you see. And what you don’t see.”
Investors’ obsession with iPhone sales has frustrated Apple’s efforts in recent years to highlight its Services business, which brought in almost $10bn in revenues during the last quarter. Mr Cook said that Apple’s hidden value is in the size of its customer base and their recurring purchases through the App Store, iCloud or Apple Music.
“Our installed base is growing at double digits,” he said. “That is probably a much more significant metric for us from an ecosystem point of view.”
He did not, however, commit to revealing the metric every quarter.
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