As part of an otherwise strong earnings report, Apple announced what amounted to a bombshell for anyone who has followed the company closely over the past decade. The company said it would no longer break out unit sales of its iPhones, iPads, and Macs when it reports quarterly earnings.
For the average consumer, this probably doesn’t even warrant a shrug. But for investment analysts and reporters, it’s the latest example of a behavior that has become a pattern for Apple: When they don’t like a metric, they bury it.
In this case, the metric involves hardware sales, but above all, sales of its flagship product, the iPhone.
For the fiscal year 2018 that ended September 30, Apple sold 217.7 million iPhones. That is up slightly from the 216.76 million sold in 2017, and the 211.88 million in 2016. But still well below the 231.22 million sold in FY 2015. Looked at generously, this was the third straight year that iPhone sales were essentially flat.
As a business, Apple has responded to this in three ways. First, to appease investors, it’s spent billions on stock buybacks and dividends. Second, it has focused on growing its Services and “Others” business (App downloads, Apple Music, Apple Watch, etc.).
And finally, it has masterfully introduced far more expensive versions of the iPhones and convinced customers to shell out for them. That’s why for Q4, even though iPhone unit sales were flat, revenue from sales were up 29 percent. Other companies can only look at statistics like that and seethe with envy.
Investors love this combination. Which is why they have made Apple the world’s most valuable company and the first trillion-dollar company in history.
But, that adulation is apparently not enough if there is a possible chink in the armor. And so Apple decided once again to remove any blemish of negativity that might be inferred from this stalling out of unit sales.
The company did something similar in September 2016 when it announced it would stop announcing first weekend sales of new iPhones as the iPhone 7 went on sale. Such statistics were always a bit fuzzy, but for many years Apple was always happy to trumpet the annual new sales record and bask in the mounds of free publicity that flowed from the global news coverage of the figure. Until, of course, it stopped setting new records.
Likewise, Apple has always loved to tout the success of Apple’s retail stores, disclosing in filings an “average revenue per store” figure. But that number hit a rut between 2012 and 2014, and people began to talk about challenges the company faced in this realm. And so in the 2015 annual filing, it was disappeared. That same year, Apple also stopped providing a breakdown of its employees between full-time and retail workers.
This march step away from transparency now continues. On the earnings call, Apple CFO Luca Maestri tried to pretend otherwise, by first stating:
“First, given the increased importance of our services business, and in order to provide additional transparency to our financial results, we will start reporting revenue as well as cost of sales for both total products and total services beginning this December quarter.”
Apple will be more transparent by telling you less, including ending unit sales reporting, Maestri said:
“As demonstrated by our financial performance in recent years, the number of units sold in any 90-day period is not necessarily representative of the underlying strength of our business. Furthermore, a unit of sale is less relevant for us today than it was in the past, given the breadth of our portfolio and the wider sales price dispersion within any given product line.”
Translation: We will continue to tell you how to measure our business in a way we find suitable. But the less you know about the details, the better.
“As I know you’re aware, by the way, our top competitors in smartphones, in tablets, in computers, do not provide quarterly unit sales information either.”
As rationalizations go, that is playground logic. He started it!
One final justification:
“To give you an example, the unit sales of iPhone at the top end of the line have been very strong during the September quarter, and that’s very important because we’re attracting customers to the most recent technologies and features and innovation that we bring into the lineup, but you don’t necessarily see that in the number that is reported.”
Now, one could solve this problem by providing more transparency. Why not break out iPhone sales by model? But, haha, nope. Instead, Maestri said Apple will provide “qualitative” information when the company believes it is warranted. Put another way, it will spin what limited data it offers to its advantage.
The result of this move is that Apple’s business will become even more opaque and muddled. Want to know how its Apple Music service is doing these days? Well, the company will tell you that it was part of a group of services that set “new revenue records” in the quarter and that total subscriptions across all products are 300 million. But Apple Music itself? We have no idea.
By the same measure, we learn that “wearables” revenue was up 50 percent. That includes Apple Watch, Airpods, and Beats. But how any of the products are doing individually, well, that will remain a guessing game.
Now iPhones, iPads, and Macs will tumble into the same pit of obscurity and fogginess. Analysts and journalists will grumble. Investors will temporarily send the stock down. But Apple knows all this will pass eventually.
Because Apple is a publicly traded company. And as Maestri helpfully reminded the world, there is only on metric upon which a company should be judge: Its ability to make money.
“We’ll provide qualitative commentary when it is important and relevant,” he said. “But at the end of the day, we make our decisions from a financial standpoint to try and optimize our revenue and our gross margin dollars, and that we think is the focus that is in the best interest of our investors.”