Here are the takeaways from today’s Morning Brief, which you can register to receive every morning in your mailbox accompanied by:
As tech giants continue their spending sprees and build their infrastructure for the next wave of AI, Apple continues its own change.
iPhone sales, which account for about half of the company’s revenue, are declining, and Thursday’s quarterly report showed another 10 percent sales decline.
But the company’s quarter was well received, thanks in part to its services business, which has become a bright spot and a source of continued profit margin growth for the world’s second-largest company.
The Services segment, which includes the App Store, Apple Pay, Apple TV+ and Apple Music, saw revenue increase 14% in the company’s second quarter.
And as CFO Luca Maestri noted during Thursday night’s earnings call, those gains, along with some cost cutting, helped push the company’s gross margins to a record high in 12 years of 46.6%, compared to 45.9% the previous quarter.
As our chart of the week shows, the company has been improving its margin profile, to use analyst parlance, for years.
Efficiency has emerged as a new theme for tech following last year’s shift toward cost-effectiveness and streamlining, following the industry’s post-pandemic talent recruiting phase.
And now, at least in part of the sector, growth is returning as AI drives an investment boom.
During Apple’s earnings call, CEO Tim Cook talked through all the AI announcements and gave investors virtually no details on projects or spending.
The general idea, however, is that they actually spend less than their Magnificent peers.
Which, as Evercore analysts wrote Thursday, investors should like because “Apple executes AI in a more capital-efficient manner than other technology companies.” Spending less to hopefully earn more, unlike, say, Meta.
And perhaps it’s an integral part of the company’s AI strategy, which is entirely consistent with the company’s long-standing philosophy of not rushing into a product category. Rather, Apple preferred to be a thoughtful, late adopter, unfazed by trends.
Computers, MP3 players, phones, tablets, headphones, VR headsets. Most have been successes for Apple; all were “behind” the competition.
Unlike the raw power its peers are pouring into AI, Apple’s services business relies on the company’s glossy brand and walled garden ecosystem.
We expect Apple’s ongoing AI strategy to capitalize on this approach, continue to drive the company’s booming margins that have defined its later years as a company, and set the company apart from peers.
Ethan Wolff-Mann is an editor at Yahoo Finance, where he publishes newsletters. Follow him on Twitter @ewolffmann.
