Apple (AAPL +0.33%) shared a lot of information last week. The huge company said on Thursday that its revenue rose 6% year over year to $94.9 billion in its fiscal fourth quarter, ending Sept. 28. Its adjusted earnings per share jumped 12%.
CEO Tim Cook talked a lot in Apple's quarterly conference call about new products. He sang the praises of the iPhone 16 lineup, the new Apple Watch, AirPods' hearing aid capabilities, the successes of Apple TV+, and Apple Intelligence generative AI functionality.
But Cook and his executive team played it close to the vest on some topics. Here are three things Apple doesn't want to talk about.
NASDAQ: AAPL
Key Data Points
1. Near-term iPhone sales growth
Apple expects its revenue in the next quarter ending in December 2024 to increase by low- to mid-single digits year over year. The company looks for services revenue to grow at a similar rate as the nearly 13% growth in fiscal year 2024.
Chief financial officer Luca Maestri was asked by analysts a couple of times in the fourth-quarter earnings call about iPhone sales in the December quarter. He refused to answer.
Cook was asked about the demand for new iPhones in the coming quarters. He responded: "We're not projecting beyond the current quarter obviously. We just don't do that."
He would only go as far as to say that the company believes Apple Intelligence is "a compelling upgrade reason." He also said that the adoption rate of iOS 18.1 was twice as much as that of iOS 17.1 during the first three days of its launch. Cook added, "So, that clearly shows a level of interest out there."
Apple has provided more color in the past about anticipated iPhone sales growth for the next quarter. However, I suspect the phased introduction of new generative AI features makes it more difficult to project iPhone sales with a high degree of confidence.
2. The impact of potential tariffs
Bank of America analyst Wamsi Mohan asked Cook if Apple is prepared for potential tariffs that could be on the way following the elections. Mohan was especially interested in any steps it has already taken to insulate itself from the potential impact of higher tariffs.
Cook didn't take the bait. He replied, "You know, I wouldn't want to speculate about those sorts of things, and so I'm going to punt on that one." I don't blame him at all for not wanting to wade into the tariff discussion. However, I think Mohan's question was a good one. Apple's business could be hurt by increased tariffs.
The company acknowledged as such in its annual 10-K filing last week. Apple noted that nearly all of its manufacturing is done outside the U.S., particularly in China, India, Japan, South Korea, Taiwan, and Vietnam.
It added that tariffs or other restrictions on international trade could have an especially big effect if they were applied to countries where it generates a significant amount of revenue and/or has major supply chain operations.
3. The relationship with Google
Alphabet's Google unit currently forks over around $20 billion per year to Apple to be the default search engine in the Safari browser, according to Morgan Stanley's estimates. But this revenue source for Apple could be in jeopardy.
A federal judge ruled in August that Google is operating an illegal monopoly in search. One potential outcome is that it could be forced to cancel its agreement with Apple.
J.P. Morgan analyst Samik Chatterjee asked Cook about what impact Google's lawsuit could have on its relationship with Apple. Cook responded:
You know, I don't want to speculate on that from a legal point of view. It's an ongoing case. And I will save that for another day.
Again, I think this was a wise deflection by Cook. However, Chatterjee's question is certainly one many investors would love to have answered.
It's possible -- and probable, in my opinion -- that Apple could easily find another search engine provider that would love to be the default in Safari. (I'm looking at you, Microsoft Bing.) But whether or not Apple could get the full $20 billion annually that Morgan Stanley believes it's getting now from Google is another story.
Answers on the way?
Do these three unanswered questions affect the value proposition that Apple offers to investors? Absolutely. However, I'm not overly concerned with them at this point.
I think iPhone sales will increase significantly in the coming quarters thanks largely to upgrades spurred by consumers wanting Apple Intelligence. I suspect Apple has already looked at what it will do to prevent potential tariffs from hurting its business too much. And I'd be shocked if the company isn't game-planning how to deal with a potential severance of its deal with Google.
Apple doesn't want to talk about these things right now. But it will have to do so with at least one of them (iPhone sales) sooner or later.
