Apple’s First Earnings Report Under John Ternus: What Investors Need to Know

Apple is coming off a big quarter, and it's all under new CEO John Turner. Here now to walk us through Apple's latest earnings is Christopher Zara. You are the news director at Fast Company, and we are so happy to have you here today. Thank you so much. Yes, thank you. I know, of course, yeah, normally I'm talking to you virtually, but it's so nice to have you here in person, able to kind of walk us through what's happening at Apple. So tell us your biggest takeaways after looking at this latest earnings report. Yeah, sure. So Apple reported earnings yesterday. It was the first one with CEO John Turner. I think the big, it was a good report. I mean, they had record sales, they had record profit, record earnings, all the stuff that looks good, and then there was this one little piece that wasn't so great, which is where they essentially said they're looking at thinner margins in the current quarter, which is the important holiday quarter, and so what that basically means is... There's going to be a lot more costs for them on these memory chips and things like that. So the profits are not going to be quite as great as investors want to see. And so their stock took a little bit of a hit. Not quite as bad as some of the other tech companies that we've seen recently, but it's down a little bit today. Yeah, tell us a little bit about that because this kind of supply chain issue and then rising costs for certain components is something that a lot of companies are having on their mind right now. Why is this so important as Apple Yeah, because, well, I mean, John said it on the call. He said what we're seeing with memory is unprecedented. And so basically what's going on is... There's all these giant tech companies building out these AI data centers and AI servers and all these different components that they need. And they're competing with the device makers. So somebody like Apple who makes iPhones is now having to pay more to get these supplies and in some cases can't even get what they need. And so that's creating cost pressures that push all the costs up. Apple's had to raise their prices a few times and so that's a huge thing for their margins and this is where investors are getting a little bit nervous. Everything else on the sales side looks pretty good for Apple. I mean, they're selling these iPhones. Yeah, I was going to ask about the iPhone. So obviously the Duo, the new foldable phone, we're not going to see those numbers until the holiday quarter since those came out after this last quarter. But when it comes to traditional iPhone sales, those numbers are actually up and doing really well. So what do you think? Is it just more demand for iPhones, or is there something else that we're seeing there? Yeah, no, I think Apple's, I mean, they're winning the market share in a lot of ways. I think that they have, they've been successful in capitalizing, capturing a market and they put out a new phone and people want to get them. That's been their sort of bread and butter for a long time now. And I think that like that core product, the fact that that core product is still selling well is a really good... The thing for Apple, there's a lot of uncertainties in the road ahead, and one is the Duo that you mentioned. Like, how many people are going to want the foldable phone from Apple is an open question right now. We don't really know yet, although the demand looks pretty strong for it. So I think that there's a lot of uncertainties ahead with something like that, and then also with AI devices, how people might start to change the way they interact with the world and not use their iPhones as much. That's a little bit more theoretical and down the road. But for now, as you mentioned, the iPhone, the core bread and butter product, looks pretty good. Yeah, and thinking about the Duo, as we were talking about, do you think that this really could be a breakaway product for them, or do you think it might kind of end up in this kind of niche premium market that isn't necessarily going to go anywhere? Yeah, super hard to say. I would say that there's going to be... It feels more limited than the traditional iPhone, in my opinion. I think that there are going to be the power users who want them. But there's also going to be, like, they have to get it out there into the world first. And I think there's been, like, some issues with, again, with the supply chain part of it where they've had to sort of, like, delay the rollout. And now I think there's, like, a huge waiting list for them. That might turn some people off as well. If you want to get a new iPhone, are you going to wait for this thing or are you going to go get one? So, like, it's... Kind of uncertain, but I would say it's probably not going to be as popular as the main iPhone that everyone knows. Yeah, definitely. We'll have to wait and see what happens with all of that. I know there's already back orders into next year, so we'll see what happens when people can actually get their hands on them or not. Thinking about some of their other products, again, strong results overall, but things like iPads, sales in China, not as high as we thought they would be. What do you think is going on with those products and with the sales overseas? Yeah, again, I think that sometimes you hit a wall with something like the iPad. People don't need to replace them as much, the use cases eventually start to look a little bit more limiting. Super successful. I mean, it's been around a long time. And I think that like anything else, like Apple will figure out new ways to innovate there as well, probably. Yeah, I think as well. We'll wait and see with that. When it comes to this new earnings report under new CEO John Ternus, right? First time we've had a new CEO since Tim Cook. Tell us a little bit about what we're seeing with his leadership strategy, what we might see going forward in terms of his corporate strategy. Yeah. I mean, you know, he seemed measured On the call, I think it was kind of interesting that like he I I feel like he didn't oversell what was happening, and then I think where he... The stock kind of went down after the call ended, like more so than it typically would. That's probably not his fault. It was probably because of things that were said on the call, but it does, it makes you think, makes you wonder if people are already kind of missing Tim Cook a little bit. It's really early days for John, and I think that, like, he's only really, he hasn't even really had a full quarter yet as CEO, like, so I think that there's going to be, he's got a lot of time, a lot of time to grow. I think the main difference... Strategy-wise, he's a hardware person, he has an engineering background, so he's going to be different than Tim Cook in the sense of his perspective and where he's coming from. Will that return Apple to its core design, the core design soul that it has and had? That is an open question. He'll probably be different than Tim in a lot of ways, though. Yeah, I'm sure he will be. And, you know, looking at this kind of broader earning seasons for tech, it's been pretty brutal with Amazon, Google, Meta making such giant investments into AI infrastructure, data centers, all of that, which we're seeing a little bit less of from Apple. So what do you think is going to happen when it comes to, is this going to help Apple then because they have less money going into this? Or where do you think this is going to shake out? I mean, I think that was sort of the thinking going into this. So just to put it in perspective, the capex for some of these other companies like Meta and Amazon and... And Google, like, for those companies are spending hundreds of billions of dollars to build out data centers and build out this infrastructure. Apple has taken a little bit of a different tact. It's saying we're not going to, we don't need to do all that. Part of it's because I think because they have the iPhone as the distribution point for AI. So like when the AI rolls out, they really just need to have these iPhones and they don't necessarily need all the data centers and all the rest of that stuff. The irony is, is because of this data center build out, Apple is still getting hurt a lot little bit because now it can't get the supplies that it needs so it's got it's big it kind of hits you from both sides but to the broader perspective of the other tech earnings that we saw it was not a good quarter for Google and for Amazon especially I mean they did Google saw its stock drop I think it was like a record one day drop after its earnings because because of once the spending And also, it didn't quite hit the advertising that investors were hoping, which I think is really fascinating, because Google and search advertising, that's like the core thing for Google. Yeah, it's going to be interesting to see where that goes. Yeah, it definitely will be, especially as we head into this holiday season now. So when it comes to inflation, other pressures that consumers are feeling, what do you think we're going to see from Apple as we look at the holiday season, which typically is a big time for people to be making these big tech purchases? Yeah, I think that's partially why they said the margins are going to be a little bit thinner. It's going to be tough. People are really feeling higher prices on everything. We haven't discussed Intel yet, but when Intel did their earnings, They came out and basically said, you know, our next quarter is not going to be quite as great as we might have thought it was going to be. And their stock dropped by like more than it had in like 50 years. So it was partially because the PC market's a little bit softer than they initially thought. And that's all just because of higher prices. So companies are feeling these higher prices from the... What do you think is really the biggest question facing John Ternus now as we head towards the end of this year and into next year? And what do you think investors should be watching most closely right now? Yeah. So, I mean, AI, I think, is going to be one of the big ones. The Siri AI integration, I think, is going to be a big one. There was another part of what they said about the thinner margins. It wasn't just about memory. They also did hint that, you know, investing in the AI version of Siri is also costing a little bit more money. And so that's going to hit them too. Will that play out and will that be, will that play out in a way that is favorable for them? I think is going to be one of their biggest questions because they're putting a lot into it and we don't know. Everyone's competing with these AI products, so I mean, we'll see. Yeah, we have a lot to keep our eye on, but we really appreciate you walking us through all of this today. Christopher Zaro, News Director at Fast Company, thank you so much for your time today. Thanks, Justine.