What did Apple say during the phone call?

On Thursday, Apple, the world's largest company by market value, concluded the earnings season for tech giants with its lackluster performance of slight negative growth.

According to the earnings report, Apple's total revenue for the fourth quarter (third quarter of the calendar year) was $89.5 billion, slightly better than the market's expectation of $89.3 billion. It declined by 0.7% compared to the same period last year, slightly better than the 1.4% decline in the previous quarter. However, it increased by 9.4% compared to the previous quarter. This is the first time since 2001 that Apple's revenue has declined year-on-year for four consecutive quarters. Apart from the iPhone, every hardware revenue has declined year-on-year.

However, it is worth mentioning that during the earnings conference call, when asked about the outlook for the Chinese market, Apple CEO Tim Cook gave a very optimistic response. In addition, Cook briefly mentioned the latest progress of Apple's VR headset, Vision Pro, during the conference call, and "recited" Apple's progress in AI technology.

"Very Optimistic" about the Chinese Market

Cook stated that he is "very optimistic" about the company's long-term prospects in the Chinese market and pointed out that iPhone revenue in China reached a new high in the third quarter. However, he refused to discuss the demand for the iPhone 15 in the Chinese market.

During the pandemic, Apple no longer provides formal guidance for the next quarter's performance but mentions some data points during the earnings conference call.

Cook said:

"In the quarter ending in September, we set a new record for iPhone revenue in China, and we are very proud of that. In the long run, I believe China is a very important market, and I am very optimistic about it."

In terms of regional breakdown, Greater China, which contributes 20% of Apple's annual revenue, had revenue of $15.08 billion in the fourth quarter, lower than the expected $17 billion. It declined by 2.5% compared to the same period last year and 4.3% compared to the previous quarter, significantly weaker than the 7.9% year-on-year growth in the previous quarter.

This year, Apple has faced fierce competition in China. According to reports, the strong sales of Huawei's Mate 60 series have squeezed the iPhone in the high-end market. There are already signs that the performance of the iPhone 15 in China may not be good.

Counterpoint Research analysts stated in October that they estimate a 4.5% decline in sales of the iPhone 15 series in China during the first 17 days compared to the same period for the iPhone 14. Market research company GfK also stated to the media that they estimate a 6% decline in sales of the iPhone 15 series in China during the first month of its launch.

Significant Growth Potential in the Indian Market, Current Performance Better than Expected

When asked about the Indian market, Cook stated that the company sees significant growth potential in India because it has a "low market share in a large market."

"We see an extraordinary market. Many people are entering the middle class, and the distribution situation is improving. We have opened two retail stores there, and their performance is better than expected." Renowned Apple analyst Ming-Chi Kuo recently stated in an article that the new product introduction (NPI) process for the entry-level iPhone 17, which Apple is set to release in the year after next, is expected to begin in India in the second half of 2024. This marks the first time that Apple will be developing a new iPhone model outside of China. The reason for choosing the entry-level iPhone model is because it has a lower design and development difficulty, which helps to reduce design risks.

Kuo further predicts that Apple's production capacity in India will continue to increase, and by 2023, India will account for 12-14% of the global iPhone shipments, with Foxconn having 75-80% of the iPhone production capacity in India. Kuo believes that if everything goes smoothly, the proportion of iPhones produced in India will increase to 20-25% by 2024.

According to the latest data released by Counterpoint Research, India surpassed France and Germany for the first time in the second quarter of this year, becoming the fifth largest market for Apple iPhones, contributing nearly 4% of the total iPhone sales, with a year-on-year growth of 50%. In the third quarter of 2023, Apple's shipments in India exceeded 2.5 million units.

Currently, the top five markets for Apple iPhones are the United States, China, Japan, the United Kingdom, and India. Currently, Apple's market share in the Indian smartphone market is only 5%.

Vision Pro is a revolutionary product, offline experience is crucial

During the meeting, an analyst asked Cook whether he believed that the release of Vision Pro and the consumer education process would eventually be similar to AirPods and Apple Watch.

Cook stated that he believes Vision Pro is completely different from the other two hardware products, and Apple will provide usage demonstrations in its stores:

"I would say no. There has never been a product like Vision Pro before, so we specifically launched it only in our stores so that we can truly focus on the last mile. We will provide demonstrations in our stores, which will be a completely different process from the typical grab-and-go process."

Cook added that Apple has seen "tremendous enthusiasm" surrounding Vision Pro, and he has tested some of the applications that developers are exploring, stating that "some really exciting things are about to come out."

According to Apple's plans, Vision Pro will be available in the United States starting next year. According to Apple's official website, Vision Pro will be sold both online and in retail stores, but Apple may require customers to pick up the product in person at offline stores to ensure a comfortable fit.

In addition, well-known Apple leaker Mark Gurman previously mentioned that Apple will assemble Vision Pro for customers in retail stores and provide suitable headbands, light shields, and prescription lenses if necessary, so the offline experience is crucial for Vision Pro.

Keeping AI development under wraps, emphasizing that the company has "invested a considerable amount of money" in this field

When asked about Apple's progress in the field of AI, Cook gave a typical scripted response that is characteristic of Apple.

He said:

"We view artificial intelligence and machine learning as foundational technologies that are almost inseparable from every product we showcase."

Cook then listed a series of AI features already present in Apple products, including collision detection, fall detection, and the electrocardiogram function of the Apple Watch. He emphasized that these features are all AI-driven, but the company does not label them as such, instead naming them based on the actual benefits to users.

While this is indeed true, the problem is that Cook said the exact same thing during the third quarter earnings call in August. He even gave the exact same examples: collision detection, fall detection, and the electrocardiogram.

According to well-known Apple leaker Mark Gurman, Apple is quietly developing a large-scale language model called "Apple GPT," similar to OpenAI's ChatGPT, but this information has not been confirmed by Apple.

During the earnings call, Cook said:

In terms of generative artificial intelligence, we are clearly working on it. I'm not going to go into detail about what it is because you know we really don't do that.

What I can tell you is that we will invest a considerable amount of money, we will do it responsibly, and over time, you will see progress in our products.

He said the same thing during the third quarter earnings call in August:

"We will continue to invest and innovate, responsibly advancing our products."

Three months have passed, and the only change is that the wording has changed from "invest" to "invested a considerable amount of money."

Considering Apple's reputation for keeping future product plans under wraps, consumers may only have the opportunity to learn more about Apple's progress in AI when products are nearing release.

After the call, Apple's stock price fell more than 3% in after-hours trading.