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Speaker 1: That's the way it works, folks. The street only focuses

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Speaker 1: on revenue dynamics, and if they're brave, they go down

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Speaker 1: the income statement and they'll find that. And then it's

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Speaker 1: what I call concept concept concept China, worry, worry, worry,

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Speaker 1: iPhone worry where iPads omg and thank god, Gene Monster,

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Speaker 1: with all of his work on Apple and technology says,

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Speaker 1: you know, maybe they're rock solid. Maybe they're running this

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Speaker 1: thing for profit. Gene. I saw a record third quarter

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Speaker 1: gross margin. I saw the persistency of services maintained, and critically,

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Speaker 1: I saw cash generation in the gloom of Apple this morning.

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Speaker 1: The second guessing, is there free cash flow growth going

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Speaker 1: to EBB?

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Speaker 2: No, Tom, I think it's just going to flow and

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Speaker 2: flow higher. And ultimately they showed, as you said, some

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Speaker 2: of the most impressive margins, the most impressive gross margins

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Speaker 2: that they've ever printed, a mixed environment where component costs

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Speaker 2: are rising, of labor costs, shipping costs, all of that,

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Speaker 2: and they've been maintaining price. That shows operation efficiency. That's

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Speaker 2: what drives free cash flow. And you said it right.

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Speaker 2: One big X factor around free cash flow that we've

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Speaker 2: observed with big tech over the last nine months is

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Speaker 2: they all say we're going to be investing more into AI.

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Speaker 2: Tim Cook talks about that but says he wants to

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Speaker 2: do it responsibly, which means he wants to protect margins

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Speaker 2: and do that. That is a unique perspective.

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Speaker 1: John from his house, looking down on the Helix and

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Speaker 1: New Jersey emails in and says, is it a time

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Speaker 1: to buy Apple? If there's all this worry about legitimate

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Speaker 1: things like China? Is gene Monster saying load the boat.

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Speaker 2: So this is not investment advice, but I do think

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Speaker 2: that this is a time to own Apple. And ultimately

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Speaker 2: is you have to play this pitcher forward for one,

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Speaker 2: two and five years. And what we've seen in the

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Speaker 2: near term is that the importance of their devices in

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Speaker 2: our lives are central and that shows up and effectively.

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Speaker 2: The guidance I think it's misunderstood is for seven percent growth,

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Speaker 2: up from one percent last quarter. So that's the baseline.

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Speaker 2: The second is just the opportunity that they have to

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Speaker 2: continue to sell that engage base more products. And third

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Speaker 2: is that they have opportunities to go into new markets,

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Speaker 2: whether it be spatial computing or what potentially could come

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Speaker 2: out of automotive and so I think when you put

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Speaker 2: all this together, this is a unique dynamic, and I

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Speaker 2: think that this will power shares higher in the years

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Speaker 2: to come.

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Speaker 1: Paul, you know this. I mean you've lived this where

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Speaker 1: you're like, is it a twelve week quarter, thirteen week

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Speaker 1: quarter of fourteen week quarter? I mean it's like death exactly.

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Speaker 3: Hey, Gene, you know, going into the quarter, the pundits

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Speaker 3: for saying, you know, the primary focus is going to

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Speaker 3: be China. So let's approach that from the perspective of competition.

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Speaker 3: Talk to us about the Huawei phone. How much of

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Speaker 3: a competitor is that. How much is a concern about

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Speaker 3: nationalism weighing on potentially future demand for Apple products.

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Speaker 2: So the first is the Huawei phone that's picked up

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Speaker 2: a lot of traction during the quarter, a lot of

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Speaker 2: speculation this is going to weigh on the China numbers.

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Speaker 2: And China was down two percent year over year, at

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Speaker 2: a similar rate that it was down back in March

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Speaker 2: when before the new Wuawei phones came out. It was

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Speaker 2: down seven percent December of twenty twenty two, and so

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Speaker 2: it fluctuates as the bottom line, China's up and down.

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Speaker 2: And I don't think that the Huawei phone is having

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Speaker 2: an impact. Apple gained share in China in the September quarter,

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Speaker 2: and Huawei may have gained here too, But Apple is

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Speaker 2: gaining share, and so I think that it is not

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Speaker 2: having an impact on their business. And if you look

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Speaker 2: at their China business, and I look at this on

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Speaker 2: excluding the FX on a constant currency basis, it was

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Speaker 2: up for percent. I'm reluctant to do that because I

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Speaker 2: don't want to give but it's worth noting that China's

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Speaker 2: doing okay for Apple.

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Speaker 1: Yeah, Paul Code of the Day anerog rana genius. Apple

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Speaker 1: has eighteen percent one eight eighteen percent of the unit

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Speaker 1: installed base, and yet you just sort of g monsters

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Speaker 1: say they're gaining share in the gaining share.

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Speaker 3: All right, let's go to the other side of the

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Speaker 3: income statement. There a gene on the cost side here.

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Speaker 3: I guess you know, when I look at the operations

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Speaker 3: of Apple, I just don't see any snare where the

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Speaker 3: d couple from China. Now, they can I guess, reduce

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Speaker 3: to some extent their dependency on sourcing and manufacturing in China,

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Speaker 3: but they really can't decouple. So did how do investors'

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Speaker 3: long term investors like you get comfortable with that side

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Speaker 3: of the equation.

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Speaker 2: I don't think you do. And I think that I

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Speaker 2: mentioned everything is good in China. I was talking about

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Speaker 2: on the consumer side. I think on the production manufacturing side,

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Speaker 2: it's a different story. And the story is that Apple

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Speaker 2: needs to get out of China or at least reduce

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Speaker 2: its exposure. Right now, we estimate that about forty to

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Speaker 2: forty five percent of their revenue is manufactured in China.

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Speaker 3: Now.

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Speaker 2: It's down from sixty percent a few years ago, so

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Speaker 2: they've been reducing their exposure there. But the bottom line

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Speaker 2: is that I don't think investors until that number gets

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Speaker 2: down to twenty percent. I don't think investors are going

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Speaker 2: to rest easy because this is as a geopolitical element

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Speaker 2: to it and is a wild card when it comes

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Speaker 2: to some of the confidence that investor have in the

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Speaker 2: company's ability to produce products to meet this sensational demand.

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Speaker 3: And gene does a company have a strategy or are

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Speaker 3: they articulating any confidence that they can in fact get

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Speaker 3: down to that twenty or twenty five percent exposure.

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Speaker 2: They do, it's predominantly India. India's right now about two

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Speaker 2: percent of their production, and they've talked about ramping production there,

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Speaker 2: and so it'll go a lot tell lot of other areas,

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Speaker 2: even like you probably will see something in Mexico in

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Speaker 2: the next five years too.

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Speaker 1: Jane, quickly here, Services up sixteen percent. It's a persistent vector.

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Speaker 1: Do you have a terminal rate on services or does

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Speaker 1: it just grow out? You know, until Frozen eight comes

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Speaker 1: out for Disney. I mean, you know, does it just

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Speaker 1: go out forever.

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Speaker 2: It's gonna keep going out forever because they have pricing leverage.

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Speaker 2: It's not just in what they've raised the pricing with

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Speaker 2: Apple TV Plus, but they raise pricing with the storage.

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Speaker 2: You get those notifications. They raise it at buck a month.

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Speaker 2: You don't think much about it, but that's a fifteen

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Speaker 2: percent increase. And so I think that this business is

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Speaker 2: generally a ten percent growing business for the foreseeable future,

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Speaker 2: which I put three to five years.

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Speaker 1: Ten seconds, Gene Monster, what's your terminal some of the

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Speaker 1: parts on Apple right now?

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Speaker 2: Some of the parts some of the parts is two

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Speaker 2: forty And I think that's based on as we think

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Speaker 2: about just ultimately what they can earn in twenty twenty five.

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Speaker 2: Gene Munster, not investment advice, but that's where we're at.

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Speaker 1: It's not investment advice, but Tucker's got his by order

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Speaker 1: out right now, G Muster. Thank you so much, Luke

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Speaker 1: Venture