Tough compare? Four lessons from Apple's latest record quarter

The company seems to have plenty of room to grow, even in China

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We all saw it coming. Despite a global pandemic and economic and political unrest, the indefatigable Apple money machine would continue to chug away. Traditionally, the last three months of the calendar year are Apple’s best, and Apple’s been on an upswing in recent quarters. If you placed a bet that the company’s first financial quarter of 2021 (covering the holiday season of 2020) would be an all-time record—well, you would’ve won, but only a sucker would’ve taken the bet.

All product categories and regions were up. It was a veritable downpour of up arrows. And yet, amid Apple CEO Tim Cook’s continued embarrassment that Apple continues to generate enormous sales and profits at a time when so much of the world is in turmoil, there were (as there almost always are!) also some interesting things we can glean about Apple’s business left amid the financial disclosures and coy asides to financial analysts. Here are a few of them.

iPhone Pro is a hit

iphone rev q1 21 Jason Snell

Apple executives singled out the iPhone 12 Pro and iPhone 12 Pro Max for praise, saying it had a “very high level of interest” from consumers that led to supply constraints on those models and helped drive up the average selling price of the iPhone. (By how much? We don’t know, because Apple doesn’t disclose exact unit sales anymore, but CFO Luca Maestri said that both unit sales and ASPs were up during the quarter.)

Recently, fans of the iPhone 12 mini (and I’m one of them!) were disturbed by a report that said Apple was reducing its sales expectations for that smaller model. The assumption at the time was that the iPhone 12 was probably doing as well as the Pro and Pro Max models, but Apple most definitely did not include the iPhone 12 in its praise on Wednesday.

It’s interesting, but let’s all get a grip: The very first people to rush out and buy a new iPhone are likely to be the most motivated iPhone buyers around, and those buyers are probably more likely to spend a lot of money on high-end models. It’s entirely possible that the 12 and 12 mini will become a bigger part of the iPhone product mix as the year goes along. Regular people actually buy iPhones in the spring and summer, you know.

Revenge of the “tough compare”

Last quarter, Apple cautioned that iPhone sales looked softer than they actually were, because the 2020 iPhone models went on sale a lot later than the 2019 models. As a result, Apple’s quarterly results for 2019 included early iPhone sales, and the 2020 results didn’t. That’s what they call a “tough compare” in the financial expectation-management game.

But a tough compare often turns into an easy one. The results released on Wednesday get to include the initial iPhone sales surge that had already come and gone in 2019, giving iPhone sales growth a bit of a bounce.

Still, don’t worry—more tough compares are on the way. Maestri warned that while the company expects a return to typical seasonal patterns in its sales in 2021, there are still a few areas that will probably take a hit. They’re Apple’s two biggest growth engines for the last few years, the Services and Wearables lines.

To hear Maestri tell it, Services got a massive benefit from much of the world going into lockdown in the early days of COVID last year—and that won’t be the case this year, presumably. Also, the Wearables line benefited from pent-up demand for AirPods at this time last year, while this year Apple expects to be more normal. File this away for late April, when we’ll probably be right back here explaining why Services and Wearables looked soft. It’s all about the compare.

Apple bounced back in China

china q1 21 Jason Snell

Apple’s business in China has been lackluster for the last couple of years, but this latest quarter saw a huge 57 percent growth in revenue versus the same quarter the previous year. That’s the largest year-over-year growth quarter in China in five years.

Apple executives say that China’s broad re-opening, including Apple retail stores, helped a lot—though some Chinese markets have backslid, with virus re-emergences leading to some closures.

When Apple does well in China, the most common reaction seems to be to assume it’s driven by the iPhone. And, yes, the iPhone did do very well in China. Cook said that both switchers and upgraders drove iPhone sales, helped in part by the country’s well-established 5G network, which led to pent-up demand for 5G-capable iPhones. (Cook didn’t mention the fact that the iPhone 12 was visually different from its predecessors, but in the past every time Apple has changed the look of the iPhone, Chinese iPhone sales have done well.)

But it wasn’t just the iPhone! “We could not have turned in a performance like we did [in China] with only iPhone,” Cook said, pointing at iPad sales that were “far beyond the company average” in other markets, and above-average performance from Mac and Wearables categories, too.

“If you really look at it, we did really well across the board there,” Cook said.

Plenty of room to grow

Apple has become so big, so profitable, that it would be easy to look at the company’s results and assume that it’s running out of room to grow. But that would be wrong, as Cook and Maestri repeatedly pointed out. (This is catnip to the investment world, which prizes growth over all else.)

“I still think that we’re in the early stages of [wearables],” Cook said. “If you look at our share in some of the other products… you find that the share numbers leave a fair amount of headroom for market-share expansion. And this is particularly the case in some of the emerging markets, where we’re proud of how we’ve done, but there’s a lot more headroom in those markets.”

Cook provided India as a specific example. Last quarter, Apple doubled its business in India versus the year-ago quarter. “But our absolute level of business there is still quite low relative to the size of the opportunity,” he said. “And you can take that and go around the world and find other markets that are like that as well.” He wouldn’t name those markets, but did admit that there are several other regions where Apple’s market share is “lower than we’d like.”

Cook also cited growth in enterprise markets, which has been a “multi-year effort” that has “gained quite a bit of traction.”

There’s one market where Apple’s market share is quite low and there’s plenty of room to grow, thanks to the transition to Apple silicon. “The M1 chip gives us a new growth trajectory that we haven’t had in the past,” Cook said. “Of course, our share on the Mac is quite low for the total personal computer market. And so there’s lots of headroom there.”

Growing a business that’s already as hot as Apple’s? That will be what you might call a tough compare. But Apple’s shown few signs of backing away from the challenge of besting its own records.

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