Apple’s riding high after another record quarter, but where is it headed?

Here's the news about Apple's fiscal first quarter of 2022, covering the holiday season of 2021: So many of Apple's arrows are pointing up that, due to issues with the global supply chain, they've run out of arrows.

Apple's just fine.

Every record has been broken

So, most revenue in a quarter ever. Biggest profit ever. But if you're looking for places to find a weakness in the purring machine that is Apple Inc., you're going to be hard-pressed to find one. Apple's strength crossed every geographic segment.

What's more, Apple's quarter happened with one hand tied behind its back. Three months ago, the company warned that due to supply-chain issues, it would probably miss about $6 billion in sales during the quarter. This was an all-time record for Apple, nearly $124 billion in revenue, and yet according to Apple CEO Tim Cook, it should've broken $130 billion.

If there was a weak spot in the results, it was the iPad. Sales were down slightly, but Apple laid the blame on that squarely at the problems it had with the supply chain. When Cook was asked by analyst Kyle McNealy on a post-results conference call if Apple had prioritized building more iPhones rather than iPads during the quarter, Cook said it wasn't that simple.

If you look at the commonality between different products, there is some… [but] it's much more focused on the supplier than anything else, Cook said. There is some of that, but largely we have to take it wherever the shortages are.

Supply constraints affected the iPad's availability. Image: Apple

I read Cook's answer as admitting that, yes, perhaps Apple has some control of what goes where in terms of prioritizing iPhones over iPads, but in large part what hit the iPad was that the iPad uses certain kinds of parts that were hit by the same chip shortage that's hitting manufacturers all over the world. Apple said it would happen, and it did. Many people ordered iPads in the fall and didn't get them until this month.

The good news for Apple is that, according to CFO Luca Maestri, the constraints in the current quarter will be significant, but less than what we experienced during the previous quarter. (For the record, Maestri said that he expects that quarter to set a revenue record for Apple's fiscal second quarter. I'll start workshopping new record revenue headlines now.)

The two big numbers

When we think about Apple's financial disclosures, most of us–for obvious reasons–think about money. But while the legally mandated disclosures are all about cash, there are other numbers that Apple likes to disclose a bit more informally. And these numbers are, in the estimation of many analysts, some of the best numbers to use in gauging the trajectory of Apple's business.

The first of these is the size of Apple's installed base. This is the number of Apple devices in use at any given time–not just the stuff sold in the last three months, but every single device in use. If you give your kid your old iPhone and buy a new one, the installed base just went up by one.

Apple's active installed base of devices is now at 1.8 billion, a new record, on the way to a cool two billion. And according to Maestri, it's growing everywhere, with all-time records in each major product category and in each geographic segment. Analyst Ben Bajarin speculated that there are probably 120 million active Macs in the installed base. And when Apple crows about how many purchasers of a product had never bought one, that's because those purchases contribute directly to the growth of the installed base.

Apple has about 1.8 billion devices that are actively being used right now. Image: Apple

(For the record, Apple says half of all new iPad purchases and two-thirds of Apple Watch purchases in the quarter were by people who were new to iPad. And 60 percent of the new Macs sold in China were to first-time Mac buyers.)

The second big number that isn't directly about money is subscribers. Apple says now it has 785 million paid subscriptions on its platform, up 27 percent in twelve months. Now, those obviously aren't just subscriptions to Apple TV+. Subscriptions also include every subscription that's controlled by the App Store, so–for example–my subscription to Carrot Weather is one of those subscriptions. But still, Apple takes a chunk of that money and counts it as its own.

The larger point Apple wants to make with this number is, whether it's selling its own services or reselling the services of app developers, it's building a subscription business that's growing rapidly. That's good for revenue in its Services category, which is (unsurprisingly) its fastest-growing financial category.

Where's the road map?

Sometimes the quarterly conference call between executives and financial analysts can get pretty dry. Apple's executives are well trained to stick to the script and not disclose much of anything during the direct question-and-answer portion of the call.

During those dry moments, it's sometimes fun to watch as a new analyst rolls onto the scene and decides to see if they can get Tim Cook to disclose Apple's future product direction. (It never, ever works.)

Step up to bat, Amit Daryanani of Evercore: Tim, I think one of the topics investors can struggle a fair bit with Apple is really just trying to understand visibility around your product roadmap…. maybe without telling us the roadmap, could you just talk about, how do you think about where to focus your RD resources on?

Daryanani's question is a good one. Apple's spending a huge amount on research and development, but unlike many of its competitors in the tech sector, Apple doesn't give away what it's doing in advance if it can help it. And Tim Cook's response to Daryanani was also a good recitation of Apple's Philosophy:

You know, we have a little different model. We try to announce things when they're ready or close to ready and try to maintain an element of surprise in there. And so that explains, hopefully, what we do with our roadmap, and I think that's proven successful for us… so we're gonna continue to do that. In terms of deciding where we invest in, we look at areas that are sort of at the intersection of hardware, software, and services. Because we think that that's where the magic really happens and it brings out the best in Apple. And so there are areas that have more than piqued our interest and we are investing in those.

Analysts often try to get Tim Cook to reveal something about Apple's roadmap. And they never get the answer they're hoping for. Image: Apple

All fine. Even Amit Daryanani knew he wasn't getting a roadmap out of Apple. I think he came out of this unscathed. But Cook obviously found it extremely amusing that someone had even mentioned Apple's product roadmap because he kept bringing it up in successive questions.

When Samik Chatterjee of JP Morgan asked about future opportunities for Apple Pay, Cook chuckled and started by saying, Well, putting aside any kind of thing that that's on our roadmap for a second in that area, which we obviously wouldn't talk about in a call…

And during a long answer to Harsh Kumar of Piper Sandler about Apple's vision of health care (in which Kumar referred to the Apple Watch as iWatch more than once), Cook interjected, I don't want to get into a road map discussion on the call.

Suffice it to say, if you're ever taking a road trip with Tim Cook, you better make sure you've got Apple Maps loaded up there. Because Tim is most definitely not showing you his roadmap.