WEBVTT - Bloomberg's Mark Gurman Talks Apple Earnings

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<v Speaker 1>Bloomberg Audio Studios.

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<v Speaker 2>Podcasts. Radio. News.

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<v Speaker 1>Now we've got to go to our own Mark Gurman,

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<v Speaker 1>of course, who knows the insides and outsides of, I

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<v Speaker 1>feel like, Apple. He is Bloomberg News Managing Editor for

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<v Speaker 1>Global Consumer Tech, joining us from the LA Bureau. Mark,

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<v Speaker 1>we keep reading everything you've got on the blog.

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<v Speaker 3>I don't know how he's doing it. He's live blogging.

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<v Speaker 3>He's on TV. He's on radio.

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<v Speaker 1>It's his digital twin.

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<v Speaker 3>He's doing it all.

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<v Speaker 1>Maybe it's his digital twin.

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<v Speaker 3>No, that's really Mark Gurman, I think.

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<v Speaker 1>Apple just down about three-tenths of a percent here in

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<v Speaker 1>the aftermarket. Where should we go? Where should we start

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<v Speaker 1>when it comes to the Apple story right now?

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<v Speaker 2>Well, let me give the backdrop. No regular iPhone 18.

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<v Speaker 2>The iPhone 18 Pro is the most minor year-over-year upgrade

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<v Speaker 2>we've seen in a long time. Nobody can find an

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<v Speaker 2>iPhone Duo. No iPhone Air 2. All the major fall products,

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<v Speaker 2>the MacBook Pro with Touch, the Home View, the HomePod Mini,

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<v Speaker 2>the Apple TV, the OLED iPad, none of them launched

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<v Speaker 2>until the holiday quarter. Yet they still beat, and they

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<v Speaker 2>beat because of the iPhone 18 Pro. likely also from

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<v Speaker 2>continued demand for the iPhone 17 Pro Max and all

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<v Speaker 2>the carrier deals you saw earlier in the quarter. So

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<v Speaker 2>this is a phenomenal report for Apple. The big news,

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<v Speaker 2>which I think will be less phenomenal, is the guidance

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<v Speaker 2>for the December quarter. Given the backdrop of everything I explained,

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<v Speaker 2>it all comes down to how the iPhone Duo is

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<v Speaker 2>going to perform. And so far, the iPhone Duo supply

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<v Speaker 2>is very difficult to understand. New pre-orders didn't come, aren't

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<v Speaker 2>launching until the end of January for many buyers. You

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<v Speaker 2>can't get them at retail stores right now unless you're

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<v Speaker 2>an AI bot. So I'll be interested to see the

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<v Speaker 2>commentary there and what the numbers actually turn out to be.

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<v Speaker 2>The other piece here is Greater China and services, both

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<v Speaker 2>either a big fall or a strong deceleration.

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<v Speaker 4>Okay, so yeah, a big miss when it comes to China.

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<v Speaker 4>We'll get to that in just a minute. First, though,

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<v Speaker 4>I want you to help us with the math. When

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<v Speaker 4>we do get that guidance about halfway through the call,

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<v Speaker 4>as you remind everybody on the live blog, Mark, that

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<v Speaker 4>we're going to get, how do we know the share

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<v Speaker 4>of Duo in there based on the number that we get?

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<v Speaker 2>Oh, we have no idea. And they're, and they're not

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<v Speaker 2>going to tell us. So it's going to be difficult

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<v Speaker 2>to discern.

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<v Speaker 4>But a bigger number will, it's a $ 2, 000 phone. So

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<v Speaker 4>a bigger number.

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<v Speaker 2>Yeah, a bigger number will mean that there's, you know,

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<v Speaker 2>quite a big uptake for the iPhone Duo, but they

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<v Speaker 2>don't register revenue, or at least they traditionally have not

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<v Speaker 2>registered revenue until the consumer actually receives the device. An

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<v Speaker 2>order being placed doesn't mean we're going to add that

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<v Speaker 2>to the numbers. It has to be the person has

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<v Speaker 2>received the phone, has kept the phone, etc., The good

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<v Speaker 2>news for Apple could be that we're going to see

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<v Speaker 2>a very strong tailwind because of the supply chain shortages

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<v Speaker 2>and give them positive numbers into Q2, Q3, Q4 of

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<v Speaker 2>next year, given how hard this phone is going to

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<v Speaker 2>be to get for quite a while now.

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<v Speaker 1>Will that ultimately hurt them? You know, it's great to

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<v Speaker 1>have pent-up demand, right? It makes for a great story,

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<v Speaker 1>great headlines.

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<v Speaker 2>I don't think it'll hurt them. I think what Apple

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<v Speaker 2>is trying to do anyways, especially under Ternus, is create

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<v Speaker 2>more consistent revenue across the year. For a long time,

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<v Speaker 2>Apple has pushed everything into the very back part of

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<v Speaker 2>the year and now spreading things across, whether that was

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<v Speaker 2>the intention or not for the duo, is them hitting

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<v Speaker 2>a goal they've had for quite some time.

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<v Speaker 4>Mark, I'm wondering about the, I mean, like a week ago,

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<v Speaker 4>one of the most read stories in the terminal sitting

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<v Speaker 4>here was the story you were writing about the cracked

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<v Speaker 4>screens on the duo. Has that issue gone away? Do

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<v Speaker 4>we expect it to be addressed at all? I imagine

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<v Speaker 4>an analyst or two will ask about this.

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<v Speaker 2>We've seen a dramatic slowdown in people reporting the cracks.

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<v Speaker 2>The cracks were reported from the first units that were sold.

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<v Speaker 2>There does not appear to be any consistency on which

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<v Speaker 2>units are impacted, whether that's a color, whether that's if

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<v Speaker 2>you bought it online or in the retail store, whether

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<v Speaker 2>it was manufactured in China or India or what have you.

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<v Speaker 2>I'm sure they'll get a question about it, but it

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<v Speaker 2>is completely died down, which tells me this was an

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<v Speaker 2>early batch defect. It was a real issue. There were

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<v Speaker 2>some influencers online trying to gaslight people into believing this

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<v Speaker 2>was not an issue. But the fact of the matter is,

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<v Speaker 2>for a small percentage of iPhone Duo buyers, you opened

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<v Speaker 2>the phone the right way, and it cracked. And that's

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<v Speaker 2>a real problem, but it clearly was an isolated problem.

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<v Speaker 1>Mark, one of the things that jumped out ahead of

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<v Speaker 1>the earnings, as Tim and I were reading through the blog,

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<v Speaker 1>your comments about how this is going to be the

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<v Speaker 1>first for Apple with new CEO John Ternes in charge

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<v Speaker 1>and what we might hear from him on the call.

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<v Speaker 1>He's a product guy. So I'm just curious what you're

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<v Speaker 1>going to be listening out for of what he might

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<v Speaker 1>say or not say.

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<v Speaker 2>Yeah, he gets all this credit for being a product person.

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<v Speaker 2>But at the end of the day, Apple is a

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<v Speaker 2>product company and nothing has changed here. All the initiatives

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<v Speaker 2>that you see introduced over the past several weeks, these

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<v Speaker 2>were all in the works for half a decade under

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<v Speaker 2>Tim Cook. Obviously, Ternus was extremely deep in the thick

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<v Speaker 2>of things. But the reality is that nothing is changing

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<v Speaker 2>a ton at Apple. because of this, at least for now.

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<v Speaker 2>I have reported, though, he wants the company to run faster,

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<v Speaker 2>wants it to run leaner. There have been a lot

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<v Speaker 2>of under-the-radar layoffs and less under-the-radar layoffs at Apple. There's

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<v Speaker 2>been cost-cutting, and I expect more cost-cutting to happen. And

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<v Speaker 2>so the guidance definitely is going to be the most

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<v Speaker 2>interesting part here. Why are they looking at all these layoffs?

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<v Speaker 2>Why are they looking at the cost-cutting? What does that

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<v Speaker 2>mean for revenue and what they're expecting there?

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<v Speaker 3>Hey, Mark, let's go to the AI story here. Apple's

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<v Speaker 3>up roughly 25%. One AI story. Okay. So Well, that's

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<v Speaker 3>the point. So Apple is up roughly 25%.

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<v Speaker 4>It's best performing mag seven going into today's print beating

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<v Speaker 4>by far Microsoft down up to up 10%. So not

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<v Speaker 4>only is it, is it beating the greater index, but it's, it's,

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<v Speaker 4>it's like the only one that's beating the greater index, right?

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<v Speaker 3>Um, so Apple.

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<v Speaker 4>Has been punished in the past and, and criticized for

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<v Speaker 4>not having an AI strategy. But what that means is

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<v Speaker 4>it does have a free cashflow position that is enviable

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<v Speaker 4>If you are spending a lot of your cash right now,

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<v Speaker 4>like some of these hyperscalers are in, is that, am I,

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<v Speaker 4>am I looking at this incorrectly?

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<v Speaker 2>No, I think you're looking at the most optimistic view here,

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<v Speaker 2>but at the same time, we've seen zero evidence from

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<v Speaker 2>Apple that they're going to be able to successfully take

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<v Speaker 2>advantage of that cash holding and trade that in, uh,

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<v Speaker 2>for a strong AI strategy. I've been using open AI

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<v Speaker 2>chat GPT dot over the weekend, uh, have completely immersed

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<v Speaker 2>myself in it. Apple has nothing close. It's a game changer.

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<v Speaker 2>It's literally like an all-day assistant that's like a human

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<v Speaker 2>that you can have.

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<v Speaker 3>This is the agent. This is their answer to Muse?

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<v Speaker 2>This is their agent, yes. Answer to Claude, answer to Muse.

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<v Speaker 2>It's been pretty terrific, and Siri AI is operating nowhere close.

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<v Speaker 1>What about Siri, the Siri AI chatbot? Have you played

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<v Speaker 1>with it? Do you like it?

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<v Speaker 2>Yeah. Yeah. Siri AI is fantastic for 90% of use cases.

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<v Speaker 2>You ask it questions, it uses that Gemini model to

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<v Speaker 2>get you the answers. You need to get something done

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<v Speaker 2>on your phone, it can get something done on your phone.

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<v Speaker 2>But in terms of replicating a real-world assistant, it's not that.

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<v Speaker 2>It's basically what the original vision of Siri was 15

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<v Speaker 2>years ago, but finally executed correctly. That's an amazing thing.

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<v Speaker 2>It means that the core AI product that Apple has

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<v Speaker 2>finally works. That means they have an excellent foundation. Now

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<v Speaker 2>they have to actually build something on top of it.

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<v Speaker 1>Services. This has always been an important revenue generator, and

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<v Speaker 1>it looks like it's slowing. How problematic is that, or

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<v Speaker 1>what's the question to ask of John Ternes and the

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<v Speaker 1>C-suite about that?

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<v Speaker 2>Well, the question is why, and one of the answers

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<v Speaker 2>is because Google searches are down because of AI, and

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<v Speaker 2>a big chunk of the revenue Apple gets from services

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<v Speaker 2>is a revenue share from Google search done in Safari.

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<v Speaker 2>And as people move to the Gemini app, as people

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<v Speaker 2>move towards the ChatGPT app or the Cloud app or

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<v Speaker 2>the Muse app, or even Siri AI to get things

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<v Speaker 2>done that they normally would do in a search engine,

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<v Speaker 2>that services revenue is going to come down. What Apple

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<v Speaker 2>needs to do is figure out a way to make

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<v Speaker 2>up for that revenue loss by monetizing search on its platforms,

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<v Speaker 2>or shall I say AI search on its platforms, because

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<v Speaker 2>they're not doing that.

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<v Speaker 4>We're speaking with Mark Gurman. He's Bloomberg News Managing Editor

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<v Speaker 4>for Global Consumer Tech. We're in the midst of Apple's numbers.

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<v Speaker 4>That call does start in just about 14 minutes. Mark's

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<v Speaker 4>going to go to that in a few minutes. We

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<v Speaker 4>do have a few more minutes with Mark. But to

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<v Speaker 4>catch everybody up, if you are just joining us, the

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<v Speaker 4>company reported revenue gains of 12% to $ 114. 5 billion. That

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<v Speaker 4>was a beat on the top line. China sales, though,

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<v Speaker 4>fell short of analysts' estimates. iPhone revenue climbed 17% to

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<v Speaker 4>$ 57. 6 billion. The shares in the after hours, they're flat

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<v Speaker 4>right now. They fell, they moved higher, and now they're flat.

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<v Speaker 1>Yeah, stock is really flat. So, Mark, you know, we've

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<v Speaker 1>always had high expectations for like what's next from Apple.

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<v Speaker 1>Where do they go next from here?

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<v Speaker 2>Well, next year is going to be an extremely strong

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<v Speaker 2>year in terms of AI wearables. So where they're excelling

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<v Speaker 2>is AI hardware. Smart glasses are going to be there.

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<v Speaker 2>The AirPods with cameras, those have often have been off delayed.

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<v Speaker 2>We're going to see those. The touchscreen MacBook Pro goes

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<v Speaker 2>on sale Friday. I'm excited for that as lack of

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<v Speaker 2>revolutionary as it is. The home view goes on sale

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<v Speaker 2>in a couple of weeks. I'm excited for that. So

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<v Speaker 2>there's a chock full product pipeline here. The big question

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<v Speaker 2>is 2028, 2029, 2030 and beyond. Things like robotics, things

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<v Speaker 2>like augmented reality glasses. Are they going to take another

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<v Speaker 2>swing at autonomy? Those are the big questions for the

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<v Speaker 2>company's future and certainly things that you will not hear

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<v Speaker 2>from John Ternes today.

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<v Speaker 1>All right, so we're all in on the elections, as

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<v Speaker 1>you can imagine. How does that, you know, Tim Cook

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<v Speaker 1>has been a master, right, in terms of really overseeing

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<v Speaker 1>things with Washington and just kind of.

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<v Speaker 3>With Beijing, too.

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<v Speaker 1>Navigating all of it pretty well, to say the least.

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<v Speaker 1>But how does the midterm outcome, you know, kind of

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<v Speaker 1>impact this company, if at all?

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<v Speaker 2>Yeah, it's a fascinating question. I've been asked this the

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<v Speaker 2>last several weeks. I think there's going to be no impact.

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<v Speaker 2>You know, the big... political thing when it came to Apple,

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<v Speaker 2>you know, with the Republicans in charge has been tariffs.

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<v Speaker 2>No matter who wins, I don't see that changing. I

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<v Speaker 2>don't think there's going to be anything dramatic or even

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<v Speaker 2>less than dramatic when it comes to whether it's the

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<v Speaker 2>Democrats or the Republicans in the lead after these midterms.

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<v Speaker 1>What's your favorite Apple product right now?

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<v Speaker 2>Me? Oh, I'm using the iPhone Duo.

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<v Speaker 3>I think it's incredible.

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<v Speaker 1>And are you loving it?

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<v Speaker 2>And I feel bad for people who want yes, and

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<v Speaker 2>I feel bad for people who want it and aren't

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<v Speaker 2>able to get their hands on it because it's a

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<v Speaker 2>game-changing experience. And I think you really should give it

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<v Speaker 2>a shot. I mean, I've seen some people buy it

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<v Speaker 2>and return it. But give it the two weeks, and

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<v Speaker 2>I think you'll get used to it. The inner screen

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<v Speaker 2>is simply incredible. It's changed my workflow completely. You can

0:10:41.880 --> 0:10:44.040
<v Speaker 2>use a lot of what you would use a laptop

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<v Speaker 2>or an iPad for on this thing. So I encourage

0:10:46.520 --> 0:10:49.080
<v Speaker 2>anyone who has the means or the desire to give

0:10:49.100 --> 0:10:49.400
<v Speaker 2>it a shot.

0:10:49.670 --> 0:10:50.410
<v Speaker 3>Or the patience.

0:10:51.890 --> 0:10:54.890
<v Speaker 2>Or the patience to wait in line for it. People

0:10:55.170 --> 0:10:57.910
<v Speaker 2>are trying to buy them through the Apple Store app,

0:10:58.470 --> 0:11:02.010
<v Speaker 2>and the AI bots are taking these things very quickly,

0:11:02.010 --> 0:11:05.590
<v Speaker 2>30 seconds, 60 seconds, 15 seconds, and it's hard for

0:11:05.610 --> 0:11:06.650
<v Speaker 2>consumers to get their hands on it.

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<v Speaker 4>We have to wrap with you in 10 seconds, Mark,

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<v Speaker 4>but when do you think it won't be an issue

0:11:11.550 --> 0:11:13.310
<v Speaker 4>where somebody can just go and get one if they

0:11:13.330 --> 0:11:13.650
<v Speaker 4>want one?

0:11:14.770 --> 0:11:16.070
<v Speaker 2>February, March. Okay.

0:11:17.210 --> 0:11:20.050
<v Speaker 3>Mark your calendar, Carol. Well, just have a little patience.

0:11:20.070 --> 0:11:22.360
<v Speaker 3>Got to update this iPhone 13 Pro that I have.

0:11:22.510 --> 0:11:27.120
<v Speaker 1>Yeah, you do kind of. I would. Mark Gurman, thank you.

0:11:27.140 --> 0:11:29.490
<v Speaker 1>We know it's busy time for you. We really appreciate it.

0:11:29.500 --> 0:11:33.020
<v Speaker 1>Mark Gurman, he's Bloomberg News Managing Editor for Global Consumer Tech,

0:11:33.040 --> 0:11:35.460
<v Speaker 1>joining us out there from the LA Bureau. As we

0:11:35.500 --> 0:11:38.260
<v Speaker 1>continue to watch Apple, little changed here in the aftermarket.

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<v Speaker 1>We're just... Not quite. A little bit more than 10

0:11:41.220 --> 0:11:43.460
<v Speaker 1>minutes away from the start of the call with analysts

0:11:43.480 --> 0:11:47.240
<v Speaker 1>and investors. So as we know, guidance for the December quarter.

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<v Speaker 1>This is going to be important, what we hear. And

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<v Speaker 1>also what they say about China and also about the

0:11:51.520 --> 0:11:53.180
<v Speaker 1>services business slowing down.

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<v Speaker 4>Yeah, and look for those headlines at about 5.30 Wall

0:11:55.750 --> 0:11:57.950
<v Speaker 4>Street time. That's when you typically find them from Apple.