Apple: Mac’s Transition From Intel Has Lured Influx Of New Customers

Despite customer enthusiasm driven by Apple moving Mac computers to homegrown processor designs, the company’s hardware revenue took a hit in the third quarter while it reached a new record for services revenue for things like iCloud and Apple TV+. On the earnings call, Apple execs talked about momentum with enterprise customers and the company’s AI strategy.

Apple CEO Tim Cook

Apple said its decision to switch Mac computers from Intel CPUs to homegrown processor designs has resulted in “both strong upgrade activity and a high number of new customers.”

The comments were made Thursday by Apple CFO Luca Maestri during the company’s third-quarter earnings call, where it reported a slide in sales for iPhones, Macs and iPads, a small boost in Wearables revenue and a new record for services revenue.

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Maestri said the influx of new Mac customers and upgrades came during the third quarter, which ended July 1.

“In fact, almost half of Mac buyers during the quarter were new to the product,” he said.

The Cupertino, Calif.-based client device giant completed the Mac lineup’s transition to so-called “Apple silicon” in June with the announcement of an updated Mac Pro that uses the M2 Ultra, which it called the “most powerful chip ever created for a personal computer.”

Apple began its transition from Intel CPUs for Macs in 2020, which marked the beginning of the end of a relationship that started in 2006 when the Mac maker switched from PowerPC to Intel chips.

Apple Device Sales Drag As Services Hits New Record

Apple’s third-quarter revenue was $81.8 billion, a 1.4 decrease from the same period last year. While services revenue grew 8.2 percent to a new record of $21.2 billion, it wasn’t enough to offset the 4.4 percent decrease to $60.6 billion for Apple hardware revenue.

Tim Cook, Apple’s CEO, blamed the sales slide on an “uneven macroeconomic environment” that included “nearly four percentage points of foreign exchange headwinds.”

“We continue to face an uneven macro economic environment, including nearly four percentage points of foreign exchange headwinds,“ he said. ”On a constant currency basis, we grew compared to the prior year’s quarter in aggregate and in the majority of markets we track.“

Apple’s stock price was down more than 1 percent in after-hours trading. Its revenue was in line with Wall Street’s expectations while its net earnings of $1.26 per share surpassed analyst estimates by 7 percent.

The company’s iPads saw the biggest revenue drop in the hardware category, declining 19.8 percent to $5.8 billion. Apple said it was tough to compare the most recent quarter with the same period last year, when it released a new iPad Air powered by its M1 chip.

Macs saw the second biggest decrease in sales, declining 7.3 percent to $6.8 billion. Beyond noting an influx of new customers and upgrades, the company didn’t provide any factors specific to the product segment that contributed to the sales lull.

The iPhone segment, on the other hand, saw sales drop by 2.4 percent to $39.7 billion, but Cook said that was against record iPhone sales in the same period last year.

When not accounting for the negative impact of foreign currency rates, Cook said iPhone revenue grew and the third quarter was a record for the number of people switching to an iPhone.

The only product segment that saw revenue growth was Apple’s wearables, smart home products and accessories. Sales increased 2.5 percent to $8.3 billion for the group.

As for what drove Apple’s record services revenue, Cook said it was more than 1 billion paid subscriptions across the company’s various services, including Apple TV+ and iCloud.

“We set an all-time revenue record for total services and in a number of categories including video, Apple Care, cloud and payment services,” he said.

Apple Claims Enterprise Wins With Blackstone And Gilead

Maestri took a few minutes in the earnings call to highlight enterprise sales deals the company recently won with global investment firm Blackstone and American biopharmaceutical firm Gilead Sciences.

The CFO said Blackstone is “expanding its Apple footprint from their corporate iPhone fleet to now offering the MacBook Air powered by M2 to all of their corporate employees and portfolio companies.”

Blackstone had 4,695 employees as of December 2022, according to the company’s most recent annual filing with the U.S. Securities and Exchange Commission. Its portfolio spans more than 200 companies “with approximately half a million employees,” according to its website.

As for Gilead, the biopharmaceutical company has “deployed thousands of iPads globally to their sales team” and “doubled their Mac user base” over the last six months by “making MacBook Air available to more employees with a focus on user experience and strong security,” Maestri said.

Cook: AI ‘Integral To Virtually Every Product That We Build’

Near the end of the earnings call, a financial analyst asked about Apple’s AI strategy, and Cook responded by saying that the company views “AI and machine learning as core fundamental technologies that are integral to virtually every product that we build.”

Cook pointed out AI-powered features coming this fall to iOS 17 for iPhones like personal voice and live voicemail as well as recently released features like fall detection, crash detection and the Apple Watch’s electrocardiogram capability for detecting irregular heartbeats.

“None of these features that I just mentioned and many, many more would be possible without AI and machine learning, and so it’s absolutely critical to us,” he said.

The Apple CEO noted that the company has been “doing research across a wide range of AI technologies, including generative AI for years.”

“We’re going to continue investing and innovating and responsibly advancing our products with these technologies, with the goal of enriching people’s lives,” he said.

However, Cook said, customers shouldn’t expect to hear about any new AI products until they’re ready: “We tend to announce things as they come to market, and that’s our M.O. and I’d like to stick to that.”