Apple 2Q16 Earnings Review: Details, New iPhone and iPad Sales Estimates, Thursday Q&A
Today's update is the second part of my Apple 2Q16 earnings review. Yesterday's update was focused on the major themes.
We begin by focusing on the more granular details from Apple's earnings call. Ten topics are covered, including:
- iPhone upgrade rates
- Apple's iPhone channel inventory reduction
- China and India commentary
The update then turns to my revised iPhone and iPad unit sales estimates for FY16 and FY17. We go over the numbers and why I am becoming more cautious across the board when it comes to Apple hardware sales. The update concludes with Thursday Q&A and a question from an Above Avalon member:
"Where will iPad sales bottom?"
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Apple 2Q16 Earnings Review: Major Themes
Today's Daily Update is focused on reviewing Apple's 2Q16 earnings. Along with a big picture overall of the quarter and management's outlook, the email covers four major themes from the report and conference call:
- Apple's 2Q16: Pretty Brutal
- Walking Back the Services Narrative
- Increasing iPhone Doubt
- iPad's Ongoing Implosion
- Apple Watch Sales Miss
- A Few More Things...
Tomorrow's Daily Update will include additional thoughts and observations on Apple's tough quarter.
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Apple Watch 2.0 to Include Cellular Connectivity?, iPhone Upgrade Program Expands Online, The Music Industry Is Broken
Today's Above Avalon stories:
- Apple Watch 2.0 to Include Cellular Connectivity?
- iPhone Upgrade Program Expands Online
- The Music Industry Is Broken
We begin today's email by taking a closer look at the WSJ's claim that Apple is working on including cellular connectivity in its next-generation Apple Watch. We go over the reasons that initially give me pause believing this rumor, followed by one factor that makes the claim a bit more believable. We then discuss Apple's iPhone Upgrade Program being extended to Apple's online store and why this is such a big deal for Apple's ability to extract iPhone profit from the smartphone industry. We conclude with a few thoughts on how album exclusives show that the music industry is broken.
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Apple Watch's First Year: Lessons & Observations, Apple's Services Roadblock in China
Today's Above Avalon stories:
- Apple Watch's First Year: Lessons & Observations
- Apple's Services Roadblock in China
We kick off today's email by marking the one-year anniversary of Apple launching Apple Watch. We go over my five primary lessons/observations I've reached over the past 12 months concerning Apple Watch, the smartwatch category, and Apple's entry into new product categories. The email then shifts over to news of China cracking down on Apple's iBooks Store and iTunes Movies. We go over the main takeaway from this development and what it may mean about Apple's business in China.
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Rethinking the Car, Apple Car 1.0, Thursday Q&A
Today's Above Avalon stories:
- Rethinking the Car
- Apple Car 1.0
- Thursday Q&A
We kick off today's car-focused email by continuing the discussion raised by my "The Car's 'iPhone' Moment" article. We go over additional thoughts about the topic and my previous experiences that convinced me the secret to rethinking the car is found by looking inside at the passenger compartment. The email then dives into my musings about an Apple Car 1.0. We go over how I am thinking about Apple's first automobile offering. What would be the car's primary features? Who would be initial target market? We conclude with Thursday Q&A and the following question submitted by an Above Avalon member:
- Is it fair to say that the iPad Pro doesn't appear to be "saving" the iPad?
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AAPL 2Q16 Earnings Preview
Today's email is dedicated to previewing Apple's upcoming earnings report. The email contains the following sections:
- Complete 2Q16 Estimates
- iPhone
- iPad & Mac
- Apple Watch
- Services
- Conclusion
Along with going over the methodology and thought process behind all of my financial estimates, this preview sets the stage for what Apple management will try to accomplish with its 2Q16 earnings release and conference call.
The AAPL 2Q16 Earnings Preview is available for Above Avalon members. To continue reading, click here.
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New Project Titan Revelations from Germany, Apple Pursuing Hollywood
Today's Above Avalon stories:
- New Project Titan Revelations from Germany
- Apple Pursuing Hollywood
Today's email takes a closer look at a new report from German newspaper F.A.Z. concerning Apple's electric car project. We discuss the three key elements of the report: employee hires, contract manufacturing and car business models. We are getting a growing number of clues as to how Apple will actually sell an electric car. The email then turns to the topic of Apple pursuing Hollywood in a much more aggressive way than initially thought. A new report from Fast Company depicts Apple as wanting to become another Netflix. We discuss the implications from such a move.
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Apple Contemplating Paid Search for App Store, New iPhone Production Cuts
Today's Above Avalon stories:
- Apple Contemplating Paid Search for App Store
- New iPhone Production Cuts
We kick off today's email by discussing Bloomberg's report that Apple is thinking about bringing paid search to the Apple Store. We go over paid search in context of mobile apps and app install ads. We need to go back to last year's WWDC to get the much needed perspective on what I suspect is Apple's grand vision concerning search and the App Store. There are better alternatives than just simply placing sponsored apps throughout the App Store. We then turn to news from the Nikkei saying Apple has cut iPhone production for FY3Q16. I have a number of questions regarding the primary implication found in the report.
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Key Apple Designer Joins GoPro, Dire Apple Watch Sales Projections, Thursday Q&A
Today's Above Avalon stories:
- Key Apple Designer Joins GoPro
- Dire Apple Watch Sales Projections
- Thursday Q&A
We kick off today's email by discussing Apple designer Danny Coster joining GoPro as VP of Design. While there are only a few people that are in a position to know the full story, we go over some of Coster's background, observations about Apple's industrial design team, recent management changes regarding Jony Ive and Richard Howarth, and my theory on what happened. We then shift over to Apple analyst Ming-Chi Kuo's dire prediction that Apple Watch sales will fall by 50% on an adjusted basis this year. We discuss Kuo's numbers and then go over my quarterly Watch unit sales estimates. We conclude with Thursday Q&A and the following question submitted by a member:
- Is Fitbit doing better than expected given recent Blaze sales disclosure?
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Facebook Underwhelmed Me, BuzzFeed Hits a Rough Patch
Today's Above Avalon stories:
- Facebook Underwhelmed Me
- BuzzFeed Hits a Rough Patch
Today's email takes a closer look at Mark Zuckerberg's keynote at Facebook's F8 developer conference. For the first time, Facebook left me underwhelmed. We then look at the FT's report that BuzzFeed is missing internal revenue projections. There are renewed questions around BuzzFeed's business model and the broader topic of news consumption in a mobile world. It's looking increasingly likely that Apple News may take on an expanded role in this changing environment.
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Project Titan Buildings Revealed, The Mac's Resiliency
Today's Above Avalon stories:
- Project Titan Buildings Revealed
- The Mac's Resiliency
We kick off today's email by taking a closer look at the Silicon Valley Business Journal report on Apple's web of Project Titan buildings spread across Santa Clara, Sunnyvale and San Jose. Upon closer examination, and using my previous research into Apple's land transactions, we have our clearest view yet of Apple's electric car project. We also discuss my thoughts on Titan R&D centers, testing ground facilities, and team HQ. The email then turns to the PC market and the disastrous 1Q shipment data. After briefly discussing the ominous trends, we look at the three likely reasons that explain Mac's resiliency.
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Samsung Shifting Smartphone Strategies, Recent Apple Advertising Buzz
Today's Above Avalon stories:
- Samsung Shifting Smartphone Strategies
- Recent Apple Advertising Buzz
We begin today's email by taking a closer look at Samsung's latest strategy of competing on price to win back market share in the smartphone market. After setting the stage for why Samsung is looking to change strategies, we discuss the most likely outcome in the U.S., China and India. We then discuss Apple advertising, taking a closer look at two recent ads starring Taylor Swift and the Cookie Monster. While Apple's advertising is still a work in progress, one of the ads likely contains clues as to where Apple is headed in terms of refining its product messaging.
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Rethinking Apple Watch Collections, Apple Campus 2 Tables vs. Project Titan, Thursday Q&A
Today's Above Avalon stories:
- Rethinking Apple Watch Collections
- Apple Campus 2 Tables vs. Project Titan
- Thursday Q&A
We kick off today's email by talking Apple Watch. Instead of recapping the highs and lows of Apple Watch's first year, I decided to mark the product's upcoming one-year anniversary by looking forward to where I think the product is headed. In today's email, I introduce new thoughts and observations that I have been toying with over the past few months regarding Apple Watch. It's time to rethink the overall concept of how Apple is selling Apple Watch and the various Watch collections. There is a better way going forward that emphasizes the Watch's most important feature.
The email then turns to an interesting story about how Apple selected 500 18-foot long tables for Apple Campus 2. There are similarities between how these tables were created and how Apple is approaching the auto industry with Project Titan. We conclude with Thursday Q&A and the following question submitted by a member:
- Why is Apple Pay adoption still so slow with consumers?
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Foxconn Buys Sharp, Foxconn's Next Big Bet, Twitter Wins NFL Streaming
Today's Above Avalon stories:
- Foxconn Buys Sharp
- Foxconn's Next Big Bet
- Twitter Wins NFL Streaming
Today's email takes a deep dive into Foxconn's Sharp acquisition. We discuss some of the history leading up to the deal, why Foxconn has been interested in Sharp for years, and implications on Apple. Next, we discuss one takeaway from Foxconn/Sharp that has nothing to do with display technology but instead with Foxconn's motivation. I'm becoming increasingly confident that Foxconn is going to be a big player in the auto industry. The email concludes with a look at Twitter winning digital streaming rights to 10 NFL Thursday night games. We discuss why I'm hesitant in thinking this deal means a whole lot for the future of live sports.
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iPhone SE Opening Weekend Sales Estimate, Growing Backlash Against Apple's India Plans, Turmoil at Disney
Today's Above Avalon stories:
- iPhone SE Opening Weekend Sales Estimate
- Growing Backlash Against Apple's India Plans
- Turmoil at Disney
Today's email begins with estimating iPhone SE opening weekend sales and comparing this total to overall iPhone sales. Proper perspective is needed when viewing Apple's intended market for the iPhone SE. We then turn to an update regarding Apple's iPhone plans for India. There is growing backlash over Apple's request to import and sell used iPhones in India. We go over the latest development and discuss why there is growing backlash against Apple from the leading smartphone brands in India.
The email concludes with a look at Disney's big announcement that Disney COO Thomas Staggs, heir apparent to CEO Bob Iger, is leaving the company. Disney and Apple have a relationship involving content and it is important to track where Disney may be headed given what appears to be growing executive turmoil.
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