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Apple reports record revenue, solid earnings beat in Q3

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Yahoo Finance anchors discuss Apple's strong second quarter.

Video Transcript

- Well, from Amazon to Apple because both of them compete in the streaming landscape and on the advertising landscape in one respect or another. Another big tech earnings winner we're seeing here. Shares of AAPL, they're moving up by about 2 and 3/4 percent, getting a boost in the pre-market after reporting record revenue for the quarter. This despite seeing a drop in income compared to the same period last year here.

And particularly I zero in on something that they mentioned on the call, which was the record that they saw in this most recent quarter. All-time record for the install base of active devices. Why is that important? Because it directly correlates to how much they're able to continue to grow out that services business. Services revenue, that grew and hit $19.6 billion during the quarter, 12% higher year over year. And we're going to be looking at an $80 billion annualized run rate for this business in no time here. That's after it hit $50 billion annual run rate back in 2020 as well.

- A lot of companies do this. But Apple is one of the prime examples of a company that-- it's like the equivalent of somebody who says, I'm going to fail the test. I'm going to fail the test. I'm going to fail the test. This isn't quite an ace-ing, but it's certainly a solid B, right. And in one of those areas that I'm talking about here is where the company talked about the hit it was going to take from supply chain issues. It warned earlier in the year that that hit was going to be $4 billion to $8 billion. And then it came in, and it said it was a little lower than $4 billion. And this quarter, it's going to be even lower than that. So in other words, they did well managing expectations, which, again, a lot of companies are, but it seems like Apple especially is adept at that.

- Yeah. And like Amazon, a lot to like in this quarter. I'm looking at a note from the Citi team here, Jim Suva, which we'll talk to very soon, pointing out a $90 billion stock buyback in play. That's about 4% of Apple's market cap. He's calling sticky services revenue as a nice win. Also looking for a foldable phone potentially in 2024. All key catalysts to Jim's call over there.

But I'll push back on this being I think a perfect quarter for Apple. On the call noting that they didn't see any demand weakness in the iPhone. So no recessionary concerns there. But did see some impact in wearables. So lower priced items. Maybe the consumer pulling back a bit. Also in services, which was interesting too. So you have to think, well, are consumers starting to pull back on various Apple services because of what's going on in the economy?

- First and foremost, I don't we need to have another foldable on the market. That's just my own--

- I'm with you.

- --opinion.

- I don't want the foldable phone.

- I don't want it either.

- Don't want it.

- I've been known to break enough phones. And I look at the screen cracks on mine right now--

- Don't show them the screen on that.

- No, mine is also.

- But then we think about some of the other areas of weakness, gross margins were actually one of those areas of weakness within this quarter. Gross margin, 43.3%. That was actually down from last quarter. Seasonal loss of leverage. Unfavorable FX. That's been a theme among some tech companies that have that large international exposure. And then the products gross margin. That was also down 190 basis points sequentially. Seasonal loss of leverage mix and foreign exchange as well there. So particularly looking across where the margins are continuing to come in for Apple, I think even as they do see the revenue move higher, where are they seeing more of the ability to take profit as the business continues grow?

- And this is before we even get the next refresh cycle. We should mention all of this. This tends to be the weaker quarter.