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Neuberger Berman senior research analyst Dan Flax breaks down Apple's Q4 earnings

Dan Flax, Senior Research Analyst at Neuberger Berman, joined Yahoo Finance to break down the latest earnings report for Apple and his outlook for the company into 2021.

Video Transcript

SEANA SMITH: Welcome back to "The Final Round." Taking a look at Apple out with results here just a few minutes ago. Shares under pressure. Apple's revenue did beat expectations, even though iPhone sales were hit by the delayed release of the new models. That delayed release causing the smartphone sales to fall on a year over year basis to 26.4 billion. And that's down from just over 33 billion a year ago.

So for more on this, we want to bring in Dan Flax. He's a senior research analyst at Neuberger Berman. And Dan, great to have you on the show. This is a stock that was really under pressure to put up some strong numbers. The shares had jumped over 50% so far this year. We're seeing the stock under pressure right now. What's your big takeaways from these results?

DAN FLAX: Great to be with you. I think there's obviously a little bit of softness in iPhone. And that's driven by two things. One, of course, the smartphone market globally is weak, including in China. And the second thing which is critical when we think about the product cycle in the months and quarters ahead, is that the iPhone 12 came out in October, whereas, typically, it would come out in September.

So the later availability of the devices and, in fact, the Mini and the Max, or the Pro Max, won't be available till next month. This is going to be a different holiday season, and I suspect some of the sales will actually land up in the March quarter. So the business, I think, is in good shape overall. IPhone certainly a bit of softness, but we have a product cycle in front of us.

ANDY SERWER: Yeah, Dan, a lot of people talk about how the company is different now. Service is so important, wearables, et cetera. But I want to even take kind of maybe even a bigger look. Is it more complicated now for you, for instance, as an analyst, to understand how the company works and actually forecast it, given that there's so many different facets of the business?

It's kind of a break from what Steve Jobs said. You know, we make five things really well, et cetera. OK, you don't have to be that anymore necessarily. But is it just harder?

DAN FLAX: I think it begins with innovation. And I'll actually go back and just reference the iPod because that really embodied this integration of the hardware, the software, the services, in a fun, easy, secure way with a great user experience. And those elements are really still part of the story, in my view.

So yes, you have a broadening of the revenue driver services, obviously, we've touched on. And that's important. But you see things like the Mac, which have been out for a very long time. Apple is continuing to innovate. The install base is growing. The iPad also is doing nicely.

Now, sure, some of it is from the work from home, learn from home, play from home. But the fact is, there's innovation in these products. There's innovation in the iPhone. Augmented reality is an example of what we're seeing there. And of course, wearables, the Watch, the AirPods.

So there are many elements of the business that are just getting going. And the older pieces, if you like, are actually continuing to get reborn. And that, at its core, it's all about the innovation.

JEN ROGERS: Hey, Dan. I was making fun of the Mac, even though I bought one this quarter. So it's-- you know, I get it. I want to talk about services, though, and the play here we're seeing with One. What kind of questions you expect around that, and then also the fitness move.

I mean, look, we've seen-- health is a sticky category, right? You can get sticky in there, and they've wanted to get into that and get a little bit deeper. Are those two areas we should expect to hear more on during the call?

DAN FLAX: I think we'll get a little bit of color, but to take the services bundle, at the end of the day, each one of the services have to be valuable and differentiated. Sure, there may be some incremental sales from bundling. But it's about delivering value to the customers. Because there's a lot of competition, as we know. In music, for example, there's this Spotify.

If you look at Fitness Plus, I think what's interesting-- and obviously, we'll see how it develops. But the fact-- the tie-in with the Watch and the service, it's pulling everything together in a way that's fun, that's easy. Almost going back to the iTunes with the iPod way back when. It was a different experience.

And if they're able to do that with Fitness Plus as an example, or other things-- Apple Pay is another example where they've seen good growth. There's a good business there. But at the end-- they have to come up with a great experience and continue to build on it. Because of course, we all appreciate competition is fierce.

SEANA SMITH: And Dan, going off of just that fierce competition, I think there's lots of questions just in terms of the potential success of the iPhone 12, just because of where 5G is in the process. It's still in the process of being rolled out. Services that are using the networks, faster speed, are still relatively limited.

So when do you think-- I guess, when do you expect 5G to actually become a factor? I mean, is it enough to really, I guess, get people off and get them to really upgrade their phones at this point?

DAN FLAX: I think it's a process that will play out over the next 12 to 24 months. As you rightly point out, a lot of the networks are still being built. And of course, it depends where. For example, in China and other parts of Asia, like Korea, it's a little bit further ahead. The US is building it out. Europe's a little further behind.

And so the key, because of course, there are existing 5G phones on the market today, is really Apple's user experience. And so I think what we'll see is that the faster speeds, the lower latency, the great experience that you can get in 5G will become more and more evident over the next 12 to 24 months. And that will contribute to upgrades.

I don't think 5G in and of itself will cause near-term large upgrades. But it's going to play out over time. And if you're Apple and as a long-term shareholder, it's about playing the long game and making sure that they can execute on product cycle after product cycle. So this is really the first crop of devices. And we'll obviously get more in the next year and beyond.

SEANA SMITH: Dan, the Street has really been able to shrug off any regulation concerns, especially when it comes to any of these big tech names, not just Apple. Are you at all worried that it's going to become more of a focus in 2021?

DAN FLAX: I do expect it to become a focus. I think all of these companies need to demonstrate more transparency around their business. If you look at some of the platform companies like Google, as an example, they need to explain to the users, to governments, to regulators, how the model works, how Google makes money, how data is being used.

Apple, the regulatory element for Apple is perhaps a little bit more in parts of their services, maybe the App Store. If we think about Apple, though, they have a minority share in most of the markets that they operate in. But they, too, along with all these platforms, need to deliver more transparency, more openness in terms of how they work.

And given that there's no silver bullet to any of this, it's about evolving their frameworks, their ways of doing business. And if the companies and Apple in this case, if they can do that and evolve with the marketplace, they will create value for their users and their broader ecosystem, which is ultimately critical to creating shareholder value.