Apple Reports Q2 2013 Quarterly Results: $9.5 Billion Profit on $43.6 Billion in Revenue, Increases Dividend and Share Repurchases

[salmon]

So apples transition from a company which, under Steve Jobs, told the share holders to stick it and sell if they want to make money, to a company which, under Tim Cook, is beginning to scrabble to do what it can to keep the shareholders happy.

This shift in focus will turn apple into A.N.Other corporate entity, i expect gimmicky products, and cheapening of its products now as instead of focusing on good products, it focuses on getting crap out to boost its share price.

Not good at all for the Apple consumer, who now goes from being the focus of Apples developments, to being a commodity used to sell shares.

I worry about this happening, as the pressures to do so from every side are immense. The short-term rush of profit is a siren call that most companies can't ignore.

However, I haven't seen evidence of this happening yet, and I think the time frame for it is much longer. All the people at Apple have worked with Steve Jobs and understand what it is that makes Apple different. They witness the customer appreciation that can only ever come from trying to make the best product possible. You can point at Maps as an example of how things are changing, but I'm willing to give Tim a pass on that one; even Steve made mistakes (like MobileMe).

Also, Jony Ives is a humungous part of the company, and I'm guessing understands all this as well as Steve did. Jony will act as the buffer against this, I'm thinking. Can you imagine the uproar if word got out Jony was unhappy with how things were going and was thinking about leaving??

 

[Rogifan]

So apples transition from a company which, under Steve Jobs, told the share holders to stick it and sell if they want to make money, to a company which, under Tim Cook, is beginning to scrabble to do what it can to keep the shareholders happy.

This shift in focus will turn apple into A.N.Other corporate entity, i expect gimmicky products, and cheapening of its products now as instead of focusing on good products, it focuses on getting crap out to boost its share price.

Not good at all for the Apple consumer, who now goes from being the focus of Apples developments, to being a commodity used to sell shares.

If Apple was really worried about Wall Street would Tim Cook have gone 230+ days without a product announcement? And allow the stock to lose 40%+ in this time frame? I would think if the stock was Cook's main focus we'd already have cheap crap out there. And a cheap, plastic iPhone would be selling in China right now. Just because Steve Jobs didn't care about Wall Street doesn't mean Cook can can ignore it. Apple was never the most valuable company in the world under Steve. At this point Apple is just to big and has amassed to much cash to ignore Wall Street. Still Cook isn't giving them everything they want. They're desperate for a product roadmap and Cook gives them zero, zip nada.

 

[milo]

I thought we were talking about late Sept./early Oct. when the next iPhone becomes available, with the iPad 5 & iPad mini 2 close behind. Not July.

That seems likely for iOS devices but there should be Mac updates (and who knows, maybe even a new product) in the later half of the year as well. Some of those will probably be before October.

This shift in focus will turn apple into A.N.Other corporate entity, i expect gimmicky products, and cheapening of its products now as instead of focusing on good products, it focuses on getting crap out to boost its share price.

I don't see that at all. Apple had piles of money just sitting there providing no benefit. Buying shares back at a low price is a good use of that money, and it doesn't take away from R&D at all. There's no evidence of the connection you imagine between how the stock is handled and product development. So far there has been no "getting crap out", you can imagine whatever future you'd like but there's nothing to back it up at this point.

 

[IJ Reilly]

If Apple was really worried about Wall Street would Tim Cook have gone 230+ days without a product announcement? And allow the stock to lose 40%+ in this time frame? I would think if the stock was Cook's main focus we'd already have cheap crap out there. And a cheap, plastic iPhone would be selling in China right now. Just because Steve Jobs didn't care about Wall Street doesn't mean Cook can can ignore it. Apple was never the most valuable company in the world under Steve. At this point Apple is just to big and has amassed to much cash to ignore Wall Street. Still Cook isn't giving them everything they want. They're desperate for a product roadmap and Cook gives them zero, zip nada.

This is true, but I'd also point out that under Steve, Apple's shareholder relations were much worse. Tim Cook at least acknowledges the shareholders and their concerns, even if he clearly isn't going to kowtow to them. It's also worth keeping in mind that capital asset management isn't an important issue just because Wall Street says so. It's an issue because it's an issue for all companies. Lately we are hearing a lot of theories about how investors are bullying Apple into doing unwise things -- like pay dividends, or releasing less expensive products -- things they might not do otherwise. None of this is actually true.

 

[AZREOSpecialist]

I was listening to the earnings call the stock seemed to drop when Tim Cook said there were no plans for a larger phone anytime soon.

I don't know if that's manipulation.

No, that's reality and one that Apple needs to sit up and take note.

----------

I think nostalgia is adding a rosy hue to the picture. Jobs had some seriously deficient keynotes. The uproar here on MacRumors, for those of you too new to remember, was epic on multiple occasions. Remember Apple speaker dock and iPod socks? Brutal.

That said, they really do need to pick up their game in keeping the market tantalized. Cook has not been good at this. A coy hint every now and again would do wonders. Anything to counter the negative (both above ground and below) propaganda war waged on Apple by its competitors (and their tricky little forum minions).

One of the things Tim Cook could do is start responding to customer emails like Steve Jobs did, giving hints and glimpses into Apple's reasoning behind things. You're right, Jobs had a few lackluster keynotes, but at least he had them. For the last 6 months we have heard nothing but Apple bashing in the media and not a peep out of Apple - not one press release to correct the misinformation, nothing. What are the PR people doing over there?

My personal theory is that Apple and Cook are feverishly working on something spectacular for the fall which is taking up a lot of resources. Whether this is the rumored TV or iWatch is anyone's guess, neither of which would be something in which I would be interested.

 

[LagunaSol]

One of the things Tim Cook could do is start responding to customer emails like Steve Jobs did, giving hints and glimpses into Apple's reasoning behind things. You're right, Jobs had a few lackluster keynotes, but at least he had them. For the last 6 months we have heard nothing but Apple bashing in the media and not a peep out of Apple - not one press release to correct the misinformation, nothing. What are the PR people doing over there?

I wish Tim had stuck with the usual "We don't comment on upcoming products" line. His implication that nothing was coming until fall was damaging in the short-term. Even if there wasn't anything due until fall, he didn't have to come right out and imply that.

Perhaps we can hope it was a feint to throw competitors off. Or I'll be spending a long, hot summer waiting for my AAPL to rebound.

 

[IJ Reilly]

I wish Tim had stuck with the usual "We don't comment on upcoming products" line. His implication that nothing was coming until fall was damaging in the short-term. Even if there wasn't anything due until fall, he didn't have to come right out and imply that.

Perhaps we can hope it was a feint to throw competitors off. Or I'll be spending a long, hot summer waiting for my AAPL to rebound.

He felt the need to explain the guidance somehow. No matter what he said, the numbers provided pretty much told the story.

Console yourself with the dividend until something more exciting comes along. That's my plan.

 

[Liquorpuki]

So apples transition from a company which, under Steve Jobs, told the share holders to stick it and sell if they want to make money, to a company which, under Tim Cook, is beginning to scrabble to do what it can to keep the shareholders happy.

This shift in focus will turn apple into A.N.Other corporate entity, i expect gimmicky products, and cheapening of its products now as instead of focusing on good products, it focuses on getting crap out to boost its share price.

Not good at all for the Apple consumer, who now goes from being the focus of Apples developments, to being a commodity used to sell shares.

Jobs is on the shortlist for best CEO's of all time. Where is Cook at?

Jobs had a proven track record where he rescued the company and then led Apple to conquer or transform new markets, increasing Apple's market cap several times fold. Jobs could tell an investor to F off and they'd still trust in his leadership and give him their money.

Cook hasn't done anything except maintain operations. He hasn't broken into any new market yet and has no answer to shrinking gross margins other than increasing dividends and initiating stock buyback. If he told investors to F off, everyone would leave and take their money and Apple's stock would take an even bigger dump.

 

[IJ Reilly]

Jobs is on the shortlist for best CEO's of all time. Where is Cook at?

Jobs had a proven track record where he rescued the company and then led Apple to conquer or transform new markets, increasing Apple's market cap several times fold. Jobs could tell an investor to F off and they'd still trust in his leadership and give him their money.

Cook hasn't done anything except maintain operations. He hasn't broken into any new market yet and has no answer to shrinking gross margins other than increasing dividends and initiating stock buyback. If he told investors to F off, everyone would leave and take their money and Apple's stock would take an even bigger dump.

No investors gave Steve any of their money, at least not after Apple's IPO. Sure, Steve became one of the greatest CEOs in history (not that he started out that way), but it should also be said that he was running the company in name only for the last two years of his life. The person who was really running Apple during that time was Tim Cook. Dividends and buybacks are not intended as an answer to shrinking margins. New products are the answer, and about that we will just have to wait and see.

 

[daneoni]

Amazon Q2 2013 Profit: $900,000 per day.
Apple Q2 2013 Profit: $106 million per day.

Apple is doomed.

 

[pirg]

Amazon Q2 2013 Profit: $900,000 per day.
Apple Q2 2013 Profit: $106 million per day.

Apple is doomed.

Remember it's not that they're not making money, it's that they're not printing money that has the investors spooked.

 

[Rogifan]

This is true, but I'd also point out that under Steve, Apple's shareholder relations were much worse. Tim Cook at least acknowledges the shareholders and their concerns, even if he clearly isn't going to kowtow to them. It's also worth keeping in mind that capital asset management isn't an important issue just because Wall Street says so. It's an issue because it's an issue for all companies. Lately we are hearing a lot of theories about how investors are bullying Apple into doing unwise things -- like pay dividends, or releasing less expensive products -- things they might not do otherwise. None of this is actually true.

I just shake my head at the 'Steve would have told Wall Street to go ******* itself and that's what Tim should be doing' crowd. There were lots of things Steve didn't have to care about precisely because Tim Cook was caring about them.

 

[Luis Ortega]

That sort of profit margin pretty much confirms how overpriced their products are.
The combination of excessive markups and using sweatshop Chinese labor helps them to rake in the dough.

 

[lildimsum7]

Amazon Q2 2013 Profit: $900,000 per day.
Apple Q2 2013 Profit: $106 million per day.

Apple is doomed.

I think your maths is way off. Whoever taught you how to divide has failed spectacularly. Amazon's q2 profit is $180mil. Apple's is around $9bil.

 

[daneoni]

I think your maths is way off. Whoever taught you how to divide has failed spectacularly. Amazon's q2 profit is $180mil. Apple's is around $9bil.

Where did you see $180m profit?

 

[alent1234]

Where did you see $180m profit?

in their press release

amazon is barely breaking even

 

[Dmunjal]

in their press release

amazon is barely breaking even

That's not entirely fair. They are taking most of their profits and plowing then back into infrastructure expansion. The opportunity is there so why not think long term? In some ways, I wish Apple would spend more on R&D instead of milking existing technologies.

 

[IJ Reilly]

I just shake my head at the 'Steve would have told Wall Street to go ******* itself and that's what Tim should be doing' crowd. There were lots of things Steve didn't have to care about precisely because Tim Cook was caring about them.

Excellent point. The jury is still out on Cook's leadership, and probably will be until some new products come out the door that are seen to have gestated on Cook's watch. But the negativity is overblown, and at least Apple is no longer burdened with a CEO at death's door, with all the years of questions and uncertainty that created. So much of what companies do is about their culture. Either Apple still has the culture of innovation that Steve had so much of a role in creating, or it doesn't. Culture doesn't change overnight, or because one person is gone, so I don't see any reason why it would not.

----------

That's not entirely fair. They are taking most of their profits and plowing then back into infrastructure expansion. The opportunity is there so why not think long term? In some ways, I wish Apple would spend more on R&D instead of milking existing technologies.

To a degree, you are right -- profits are for reinvesting. But spending more just because the money is available to spend is not a growth strategy. The difference in the scale of free cash between Apple and Amazon is immense. Apple's R&D spending is already massive. They couldn't spend more on R&D without become wasteful. Companies with the kind of free cash flow Apple enjoys are often seduced into making major acquisitions. I'm grateful that Apple isn't using their cash in this way.

 

[MrNomNoms]

So much cash on hand. Why not spend more of it on R&D?

Because more money doesn't mean more 'innovation' being created.

IMHO I'd sooner see Apple refresh their Mac Pro line up with a greater focus on professionals along with buying out Adobe - end of the day banking all ones future on the i-devices seems pretty fool hardy at best.

 

[Dmunjal]

To a degree, you are right -- profits are for reinvesting. But spending more just because the money is available to spend is not a growth strategy. The difference in the scale of free cash between Apple and Amazon is immense. Apple's R&D spending is already massive. They couldn't spend more on R&D without become wasteful. Companies with the kind of free cash flow Apple enjoys are often seduced into making major acquisitions. I'm grateful that Apple isn't using their cash in this way.

I think Apple spends a lot less on R&D as a percentage of revenue than most technology companies. They hardly do any real research with a capital R and look to startups instead.

As for acquisitions, I believe it is time to take a risk. You can only play the high profit hardware game so long before it gets commoditized. ITunes should teach us that content is king and will be profitable income stream for the future. Plus it locks in customers to the ecosystem.

"iTV" could be a game changer for Apple like ITunes was for music. I really thought that selling Pixar to Disney and having Jobs be the largest shareholder of Disney would have accelerated this. Unfortunately, he passed and it looks stalled.

If the studios don't want to play, maybe it makes sense to acquire one to show what is possible?

How much would Disney cost? You get ABC and ESPN as well. Imagine that content available on Apple TV or iTV?

I don't see Cook taking the chances that Jobs might have. And Apple needs to make big bets or it dies.

 

[IJ Reilly]

I think Apple spends a lot less on R&D as a percentage of revenue than most technology companies. They hardly do any real research with a capital R and look to startups instead.

As for acquisitions, I believe it is time to take a risk. You can only play the high profit hardware game so long before it gets commoditized. ITunes should teach us that content is king and will be profitable income stream for the future. Plus it locks in customers to the ecosystem.

"iTV" could be a game changer for Apple like ITunes was for music. I really thought that selling Pixar to Disney and having Jobs be the largest shareholder of Disney would have accelerated this. Unfortunately, he passed and it looks stalled.

If the studios don't want to play, maybe it makes sense to acquire one to show what is possible?

How much would Disney cost? You get ABC and ESPN as well. Imagine that content available on Apple TV or iTV?

I don't see Cook taking the chances that Jobs might have. And Apple needs to make big bets or it dies.

Taking the last point first, Apple has always taken big risks. But they've succeeded not because they involved gobbling up other large companies, but because they grew their own products, unencumbered by the legacies that come along with acquired companies. Acquisitions have played only a small role in Apple's success.

Buying a studio or other type of content producer would instantly turn Apple into a competitor with the other content producers. It's very difficult to be both a partner and a competitor. This is one huge reason why Apple should not get into content production, and explains why they haven't moved in that direction (lord knows they could afford it). If they'd tried this gambit with music, I suspect the iTunes Store would never have gotten off the ground.

Of course Apple spends a smaller part of their revenue on R&D than smaller, less profitable companies, but this is a function of the scale of their revenues, not an indication that they need to spend more. The relationship between revenue and spending shouldn't be linear because you hit the point of diminishing returns pretty quickly.

One place where I might agree about increasing spending is in pure research, a la Xerox PARC or Bell Labs. To my knowledge, Apple doesn't operate a skunkworks of that kind. They may view the entire company as one big skunkworks, but it's not conducive to pure research to have everything be product-driven.

 

[lildimsum7]

That's not entirely fair. They are taking most of their profits and plowing then back into infrastructure expansion. The opportunity is there so why not think long term? In some ways, I wish Apple would spend more on R&D instead of milking existing technologies.

They've been spending a good amount on R&D. When there's diminishing returns to R&D, it doesn't make sense to spend more. Remember, it took about 5 years of work on the first iPhone before it released. Hopefully they've been putting that R&D to good use. I hear they're working on something with TV. I imagine it'll be somewhat a ripoff of the 360 + Kinect. I doubt they could compete with the next gen xbox, but who knows.

 

[Dmunjal]

Taking the last point first, Apple has always taken big risks. But they've succeeded not because they involved gobbling up other large companies, but because they grew their own products, unencumbered by the legacies that come along with acquired companies. Acquisitions have played only a small role in Apple's success.

Buying a studio or other type of content producer would instantly turn Apple into a competitor with the other content producers. It's very difficult to be both a partner and a competitor. This is one huge reason why Apple should not get into content production, and explains why they haven't moved in that direction (lord knows they could afford it). If they'd tried this gambit with music, I suspect the iTunes Store would never have gotten off the ground.

Of course Apple spends a smaller part of their revenue on R&D than smaller, less profitable companies, but this is a function of the scale of their revenues, not an indication that they need to spend more. The relationship between revenue and spending shouldn't be linear because you hit the point of diminishing returns pretty quickly.

One place where I might agree about increasing spending is in pure research, a la Xerox PARC or Bell Labs. To my knowledge, Apple doesn't operate a skunkworks of that kind. They may view the entire company as one big skunkworks, but it's not conducive to pure research to have everything be product-driven.

I don't advocate buying Disney except in a desperation move. As the largest shareholder, Jobs would have gotten it done by now. Cook doesn't have his will.

----------

They've been spending a good amount on R&D. When there's diminishing returns to R&D, it doesn't make sense to spend more. Remember, it took about 5 years of work on the first iPhone before it released. Hopefully they've been putting that R&D to good use. I hear they're working on something with TV. I imagine it'll be somewhat a ripoff of the 360 + Kinect. I doubt they could compete with the next gen xbox, but who knows.

Do you think a bit more R&D might have produced a larger phone, a more feature filled OS, and a MacPro by now?

 

[lildimsum7]

Do you think a bit more R&D might have produced a larger phone, a more feature filled OS, and a MacPro by now?

That's an incredibly naive assumption. Why the hell would it take more R&D to figure out how to make a phone bigger or how to make a new Mac Pro? Your logic makes absolutely no sense! And what do you think all the OS updates have been about? Realizing ideas takes time! Do you have any idea what they're doing with R&D? Nope! What they've been spending on R&D provides more than enough resources to do their job. Projects take a lot of time, not a lot of money!

 

[Rogifan]

Do you think a bit more R&D might have produced a larger phone, a more feature filled OS, and a MacPro by now?

I don't think this has anything to do with R&D. It has to do with Apple's values and beliefs and what they think gives the best customer experience. You can disagree with it, and some do, but it has nothing to do with R&D. The way I look at it, Apple is about practical innovation. More often than not they don't care about being first in anything. They're not going to throw everything and anything at the wall to see what sticks. They release products that they believe are better or more elegant than what came before, will have mass appeal, and make them profitable in the long run.