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Apple will stop reporting on iPhone, iPad and Mac units sold every quarter, this is why

The presentation of Apple’s third quarter 2018 and fiscal year-end financial results has brought new records for the company. Revenues grew by almost 20% while profits grew by almost 32% compared to the previous year, a real madness.

However, the company has announced several measures to disclose its results that will be released in this new fiscal year. Among them, Apple will no longer report units sold for iPhone, iPad and Mac from now on. Let’s see what the reasoning behind this measure is.

Four new measures in Apple’s performance report

Apple will stop reporting on iPhone, iPad and Mac units sold every quarter, this is why
Apple will stop reporting on iPhone, iPad and Mac units sold every quarter, this is why

Following Tim Cook’s opening remarks, Apple CFO Luca Maestri reviewed the most immediate numbers for the quarter. He also announced changes in the way he reports his results, specifically these four measures (you can see a transcript here):

  1. Apple will begin to disclose costs in addition to revenues for both products and services. This means that analysts will be able to see what the margin of both groups is, a very interesting information that was not previously broken down.
  2. The revenues and costs of services such as iCloud, Maps or Siri that were previously included in Products, will be moved to Services. This means a shift of figures from one category to another of less than 1% of the company’s total revenue. This change was not contemplated in the goal of doubling Services revenue from 2016 to 2020.
  3. Apple will stop giving the number of units sold of iPhone, iPad and Mac. According to the company, the financial results are the result of “creating great products and services that enrich people’s lives” to obtain very satisfied customers. Along with this, they believe that the units sold in 90 days is not representative of the strength of the business given the range of prices in each category.
  4. The Other segment will be renamed Wearables, Home & Accessories to “provide a more accurate description” of what is included in this category. This is just a simple name change, although the order of the products is revealing.

Of all these new measures, Apple’s failure to report units sold is the one that has generated the most attention (and defiance ) among analysts. Many argue that this decision is the one that has led to a stock market crash of more than $15 before the opening of today’s session.

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Although part of that blame also lies with the lower than expected guidance for the Christmas quarter: $89.000-93 billion when analysts expected $93 billion on average. The question that everyone is asking now is why this decision was made. Let’s take a look at it.

Context and precedents of this measure

Every listed company is required to provide a minimum of information to shareholders. This mandatory information does not include the units sold , but does include the revenue of a certain category when it exceeds a certain threshold of the total.

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In fact, Apple was the only technology company that disclosed quarterly information about units sold in its three major categories: iPhone, iPad, Mac. Neither Samsung, nor Microsoft, nor Google have done or do so with their hardware products. This does not prevent them from occasionally revealing certain clues or specific data to their investors. This is something Apple will probably do from now on.

Companies are not required to disclose how many units they sell in each category, although Apple was the only one to do so so far

This withdrawal of information is not unique to Apple . In 2005, the company stopped breaking down Mac sales by product family (PowerBook, Power Macintosh, iMac and iBook); in 2013, it stopped reporting on how Mac was shared between laptop and desktop; in 2015, it stopped reporting on sales from its Apple stores.

Therefore, it is not unusual or surprising that from time to time you decide to change the way you report your financial results. It all stems from his intention to control the company’s narrative to investors.

Objective: to control the narrative before Wall Street in the long term

Stock market narratives are important. Every company tells a story to the investing public and always does so from the most positive point of view possible with the business data it has at its disposal and is obliged to disclose. In recent years, Apple has begun to turn this narrative to other points of its business.

Revenue in the last year has broken all records, pushed by the iPhone, services and other products.

The movement is not casual. As the years go by, Apple’s business evolves and so does the market. Apple went from being a company that sold Macs to a company whose core business was iPod. After that, the iPhone became a major player. And now, has several businesses that add up to billions of dollars every year. In the last fiscal year:

  • iPhone: $166.699 million
  • iPad: $18.805 million.
  • Mac: $25,484 million.
  • Services: $37.19 billion.
  • Others: 17,417 million dollars.

Obviously, the iPhone is still the main revenue generator by far. But the rest of the divisions represent 40% of the total . Despite this, the smartphone market has been flat or slightly shrinking for years. The easy growth is over. Apple has gone against the tide by expanding the price range of the terminal, especially at the top, which has increased revenue while the units sold remained flat.

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In anticipation of an impasse, the company has been drumming the services drum and its importance in the core of the business to displace the narrative. Apple no longer wants to be seen as the “iPhone Company”. One could argue that does not like to be labeled as a specific product, since in the past it has been the “Mac-Company”, “iPod-Company” and even “iPad-Company” momentarily. But products come and go, while Apple evolves and moves from category to category or, as at present, to several of them.

In terms of units sold, the iPhone, iPad and Mac have been flat or negative for several quarters.

Just because Apple is paying more attention to Services, and in fact will be giving more information about them through the margins, does not mean that it aspires to be the “Service Company”. It’s simply a way of saying “Hey, this part of the business is growing like a rocket, look at all that it involves”. Because the growth in Services means the financial translation of a very significant part of Apple’s effort:

  • More apps and subscriptions sales (including your Netflix court and part of Spotify among others).
  • Apple Music as a form of entertainment.
  • iCloud.
  • AppleCare and Apple Pay.
  • Licensing and other services.

Not to mention their plans around a subscription to Apple News and their future streaming service. From this perspective, it is much more important to know the installed and active user base. Because those users are the ones who consume services with increasing voracity.

With this perspective, it is not surprising that Apple stops providing the units sold of its main products. They distract from the new narrative that the company wants to build and that, in their eyes, better serves these interests. In the short term, they are willing to put up with the barrage of criticism and misguided conclusions that will follow. But in the long run, they aspire to give the company’s investors a new story. A juicier and more exciting one.

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