EU Regulations And Poor Emerging Market Strategy Will Erode Margins And Limit Sales Growth

Apple’s Glowtime event had all the makings of a great showcase, but uncertain timelines leave a sour aftertaste

iPhone

• Segment Earnings Results: The iPhone segment experienced a slight decline of 1% year-over-year in revenue, totaling $39.3 billion. It’s estimated that 45.2M iPhones were shipped in Q2 2024, down almost 5M from Q1.
• Original Narrative: In my original narrative, I anticipated that the switch to USB-C would actually result in an uptick in sales as people who have held out on upgrading their phones make the switch to the new universal standard. I assumed that unit sales would spike to around 250M but taper off back down to 240M in 2028 at an estimated revenue per unit of  $980 resulting in $235.2B of revenue for the segment.
• My Latest Thoughts: I thought it was interesting that Apple had previously pushed the Indian market heavily with respect to their growth plans, but “India” and “Emerging Markets” only appeared twice each within the latest earnings report. My guess is that they’ve put this on ice as a key growth vector, and they’re instead focussing on AI. This is a good move in my books as I think it’ll be the more accretive move in the long term, and it offers some more opportunities to monetise their software in developed markets, which I think will be a better approach to growth. On the topic of Apple Intelligence, the Glowtime event centered on its integration into the newly announced iPhone 16 lineup. Adding on-device generative AI was almost an  essential move for Apple, with the likes of Google Pixel touting it as one of the core features of their flagship product, but I can’t help but feel a little underwhelmed right now. I wasn’t so much underwhelmed by the features that Apple showcased, rather by their rollout approach. It seemed like Apple Intelligence was a huge selling point for the latest iPhone series, which boasted some extremely marginal improvements over the 15 series, but with Apple Intelligence not being available to users in Europe and Asia from the get-go and some features arriving at a much later date, the whole thing seemed quite half-baked. The Verge pointed out that the more powerful tools showcased by Apple, like image generation, custom AI emojis, Siri improvements that let it understand your personal context and integration with ChatGPT are rolling out on a very vague timeline of “later this year and in the months following.” I think Apple Intelligence is very exciting and will drastically overhaul how iPhone users interact with their phones, but I don’t think it’ll be the spark that Apple are looking for to see a reversal of fortunes in iPhone sales. Particularly if a lot of these features are software based and will be available on previous iPhone models (which they should be), I can see the iPhone 16 and 16 Pro being a very underwhelming release. I think sales will suffer as a result, but I won’t actually change my assumptions in my narrative, as I believe future iPhone releases will actually have some hardware changes that will make better use of Apple Intelligence (perhaps chips optimised for machine learning workloads) and thus offer enough incentive to boost sales.

 iPad

• Segment Earnings Results: iPad revenue increased of 24% year-over-year, reaching $7.2 billion, largely due to the launch of the new iPad Air and Pro models.
• Original Narrative: In my original narrative, I assumed that the iPad segment would deliver $25 Billion in revenue in 2028. I had assumed that the iPad sat in an awkward position in the Apple lineup where the iPhone series was the far more capable mobile device, but the iPad lacked some of the necessary features to make it a Mac replacement. I understood Apple wanted this to be the case so that users would buy all the devices, but the execution seemed poor, and it felt like the iPad was redundant to those who had both an iPhone and Mac.
• My Latest Thoughts: The iPad seemed to buck the trend of underwhelming releases, and the latest models seems to have reinvigorated the lineup for the time being. The new models feature a few major enhancements, including the M4 chip, which supports advanced AI capabilities, demonstrating Apple's push towards integrating cutting-edge technology. Interestingly, Apple said the latest results for iPad sales were significant in that “half of the customers who purchased iPads during the quarter were new to the product” which actually surprised me a bit. The market has seemingly taken to the new iPad release, more so than I had thought in my original narrative. I am conscious however that these results come after a new product launch and an uptick in sales should be expected, but the magnitude of which was greater than I was expecting. I’m still hesitant to change my overall narrative with respect to the iPad segment. I anticipate that the next quarter will see a decline in revenue for the segment and aside from the few product releases between now and 2028, I can’t see revenue changing meaningfully over the long term. I am going to hold my assumptions as is for now, but if the iPad segment continues to surprise me, I’ll definitely increase my assumed revenues for the future.

Mac

• Steady Growth: Mac revenue was marginally up 2% year-over-year, generating to $7 billion. Apple attributed this to the popularity of the MacBook Air models equipped with the M3 chip.
• Original Narrative: My original narrative was quite optimistic on the future of Apple’s Mac lineup. I am a user of Macs myself, and I was super impressed with Apple’s M1 chip which my Mac is equipped with, so I assumed it was onwards and upwards for Apple Silicon. I estimated an 8% annual growth rate and $63.75 Billion in sales in 2028.
• My Latest Thoughts: I’m still quite bullish on the Mac segment. I think Apple Intelligence will be a welcome addition to the ecosystem and will help Apple bring the fight to Microsoft’s Copilot PCs that have been released. Much like the iPad, Mac had a great quarter for acquiring new customers, with half of the MacBook Air customers in the quarter being new to Mac. Enterprise support for the product remains strong with Apple linking up with USAA to provide employees with the latest MacBook Air and American Express notably added 10,000 new Macs to their arsenal.I think that Apple will try and use Apple Silicon to their advantage and produce chips for their future Mac releases that are highly efficient in generative AI workloads. Apple has the advantage here over AMD and Intel with their closed ecosystem, and I think they’ll use this to deliver an AI integrated laptop experience that far exceeds other offerings in the Microsoft ecosystem.I’m electing to keep my assumptions consistent for now, but I’m acutely aware that this is probably my most far-fetched assumption in my entire narrative.