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00:00 Speaker A
Jay, it is good to see you. So, listen, we have Apple’s results. We don’t have the guidance yet, Jay, as always, we would expect executives on the call to offer some more color and commentary about what they see ahead. But but give me your take on the quarter, Jay, and especially what you make of this iPhone revenue number, uh which easily beats the street. I mean it came in Jay around 85 billion. The street was closer to around 78.
00:27 Jay
Yeah, so far, so good. I mean my basic thesis on Apple right now is very tactical in that their current the current cycle of phones, the current cycle of products looks really strong. People are buying those phones. Your previous guest was saying the same thing. people like the new phones and sometimes it’s as simple as as that, right? I think the numbers look good both in terms of top line for revenue, for iPhones, for China, China looked better than expected. and most importantly for gross margins, the gross margins look really good this quarter, uh way above where I was expecting them.
01:03 Speaker A
Uh I I do want to talk about uh AI for a second here though because we know listen, we we heard Apple’s going to use Google’s uh Gemini models to power its AI efforts. That’s going to include a more personalized Siri. I I’m just curious what you make of that, Jay, what kind of impact you think that could have on on the next iPhone upgrade cycle in your opinion?
01:29 Jay
So, I think ultimately AI is an existential threat for Apple. They need to get it right. But the good news is that they have time to do that. They don’t need their own model today. They they are in a good place working with Google, working with some of the other companies uh to sort of exist on the on the platform. You know, Siri just isn’t isn’t all that, right? It’s not that exciting. It doesn’t do that much and it could use for, you know, people people want better experience now, whether they’re used to what Chat GPT or Cloud has to offer. Uh and having having Google behind them should get Siri to someplace that’s at least functional and useful and give Apple time to sort of out its own house and get its own AI team to where it needs to be.
02:18 Speaker A
Jay, you mentioned margins. Let let’s stay on that for a second because that was a big topic of debate heading into this print. A lot of your colleagues on the street were writing about this and and specifically the rising memory cost, Jay and they’re wondering, okay, they’re trying to game out and model, what could that mean actually for Apple’s uh pricing and margins in the quarters ahead? How do you see it, Jay? What what levers does Tim Cook have to pull on that?
02:51 Jay
So it’s a big question. That’s why I’m really waiting to hear what they have for the guide. That’s going to be critical. They did get asked about memory prices on their last earnings call a quarter ago and they said that they had put in place long-term agreements with the memory vendors that sort of lock up pricing for some long period of time. Since then, spot prices for memory have just kept going up and up and up. Um and eventually contract prices will converge with spot prices. And so that’s a sort of ongoing risk this year looking at where they’re where they’re going to see are they going to keep to that story that they have these long-term price agreements in place. It’s really important for Apple especially on the margin front, they make a lot of memory from margin from from memory, right? When you buy an iPhone, you pay an extra $100 to get another whatever amount of RAM or flash. Um that has that has a lot of margin baked into it. They they don’t it doesn’t cost them $100 to to do that. And so what are they going to do sort of with those price increases, are they going to make the consumer eat them? Are they going to, you know, fit it into their own gross margins? We don’t know. Uh the guy’s going to tell us a lot. And I think that plays out later in the year when we get what is probably going to be a fold a folding phone, that’s going to be pretty expensive. Uh how much elasticity is there for demand? Are consumers going to pay big big numbers for that? That may save them in the end.
04:36 Speaker A
What about uh greater China? that’s another important data point. I just want to run by you. Q1 greater China revenue, 25.5 billion. That was a beat. Uh your colleagues on the street, the estimate consensus J was more like 21.8. Uh what do you make of that number? How do you see business for Apple and China kind of evolving from here?
05:00 Jay
I think Apple is is in this weird place where it has to be walk this very fine line. Like they’re very dependent on China, both the market and for their manufacturing base. they’re probably too dependent for their own good. Um so they have to walk this fine line between, you know, Tim Cook going to see the president every every occasion and saying all the right things in China. Um so far they’ve they’ve maintained that. Um I think the the fact that they’re doing well in China, as we see a lot of changes take taking place in the Chinese smartphone market, prices are coming down for all their competitors there. Apple’s doing really well. it’s it’s a good sign. like consumers in Apple in China still like Apple, they still like the brand and and I think that will carry the weight for for at least for the time being.
05:54 Speaker A
Jay, great to have you on the show today. Appreciate that analysis. Thank you.
05:58 Jay
Thank you.