It’s Apple earnings day, so I thought we’d assemble a short brief on Common Knowledge around the
Insert XS Pun Here
To learn more about Epsilon Theory and be notified when we release new content sign up here. You’ll receive an email every week and your information will never be shared with anyone else.
Continue the discussion at the Epsilon Theory Forum
Participants
The Latest From Epsilon Theory
DISCLOSURES
This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results. Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results. Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Good stuff - thank you Rusty. Also, it provides an opportunity for me to note / ask about what is a pretty stunning “paradigm” shift. Apple raised the price of new technology meaningfully and…it worked. Up until this launch, prices for technology seemed to always come down. Sure you paid up a bit for the newest of new, but not like the way you do for the iPhone XS/Max.
Up to now, new phones, computers, TVs, etc. - even the newest and greatest - seemed to always get cheaper over time. I paid more for an up-to-date Gateway computer in 1996 than I did for my up-to-date Mac in 2015 (and that’s in nominal dollars, the Mac was much less in constant dollars).
But this time, a company meaningfully raised the price of a piece of new technology and the stories around the launch have been, as you note, positive. Somehow, our always with us class warriors, socialists and corporate scolds weren’t screaming about - and didn’t successfully create a dominating narrative about - how the “richest company in the world / worth almost a trillion dollars / blah, blah, blah” was “gouging” its customers.
How did Apple do it? How did it avoid the negative story and create a positive one? How did it dramatically change the pricing paradigm for new technology - in its favor - and get no real blowback? It’s stunning - no?
And how does this impact the inflation reality if not narrative you and Ben have been discussing - can’t be good methinks.
On the one hand, one gets the impression that Apple (and Samsung, LG, et al for that matter) always could have charged a lot more for the phones, and it’s easy to say that they’re just now really doing it, and it’s all very sensible. But between Apple, Amazon, Google, etc., I don’t think you’re wrong at all to get a frog-in-pot feeling around prices.
Mark – you nailed this 100%. What is most likely going to be the takeaway from this earnings report is how Apple has dramatically driven up ASPs (avg sales price) and, presumably, margins. Since they have achieved market saturation (everyone who wants a smart phone/tablet/laptop has one) and upgrade cycles are slowing down, the only way to drive revenue and earnings growth is through price increases. Last year Apple moved the price on high-end phones up by 25% with the X. This year, they moved the price on the “base” phone (the new Xr) up by 25%. Xr sales won’t show up in the Q3 numbers, as they were not available for sale until last week, but they are going to be selling a heck of a lot more of those this xmas than Xs or Xs Max. Similarly, this week Apple announce the long awaited replacement for the MacBook Air (still the most common laptop you will see in every Starbucks) at, guess what, a 20% increase in price for the base, low speced model.
As to how this equates to/impacts inflation, I’m less sure. Prices continue to drop (both absolutely and heuristically) on Android phones and on Windows laptops. But if you want to stay in the Apple ecosystem, it’s going to cost you more.