Introduction: From the perspective of revenue composition, Apple's main revenue includes smart hardware (iPhone, Mac, iPad, wearable devices, smart homes and accessories) and software services.
Li Ping | author
1
Profitability is amazing, and the Chinese market is growing the fastest
Not long ago, Apple released the first quarter of fiscal 2022 (the fourth quarter of 2021) financial report.
According to the financial report, in the fourth quarter of 2021, Apple achieved sales revenue of 123.945 billion US dollars (about 789 billion yuan), an increase of 11% year-on-year, setting a record for the company's single-quarter revenue; achieving a net profit of 34.630 billion US dollars, an increase of 20% year-on-year, equivalent to 220.437 billion yuan, equivalent to a net profit of nearly 2.4 billion yuan per day, and the profitability is amazing.
Apple's strong profitability is not unrelated to the improvement of its gross profit margin. According to the financial report, in the fourth quarter of 2021, Apple's comprehensive gross profit margin reached 43.8%, an increase of 4 percentage points year-on-year, setting a new high in 10 years. Among them, Apple's hardware business benefited from the new iPhone and Mac products, the overall gross profit margin reached 38.4%, a new high in 6 years; the gross profit margin of the software business reached 72.4%, standing above 70% for two consecutive quarters, which also played a certain role in promoting the company's overall gross profit margin.
From the perspective of revenue composition, Apple's main revenue includes smart hardware (iPhone, Mac, iPad, wearable devices, smart homes and accessories) and software services.
In terms of hardware, the iPhone business achieved revenue of $71.63 billion, an increase of 9% year-on-year; Mac products achieved revenue of $10.85 billion, an increase of 25% year-on-year; wearable devices, home and other products achieved revenue of $14.70 billion, an increase of 13% year-on-year; iPad achieved revenue of $7.25 billion, down 14% year-on-year, becoming the only category in Apple's segment this quarter that declined year-on-year.
In terms of software, apple services revenue achieved revenue of $19.52 billion in revenue in the quarter, up 24% year-on-year, benefiting from the growth of App Store advertising revenue and Apple's cloud services.
Regionally, in the fourth quarter of 2021, Apple's Revenue in Greater China was $25.783 billion, an increase of 21% year-on-year, ranking first in apple's global market; revenue in the Americas was $51.496 billion, an increase of 11% year-on-year; Revenue in Europe was $29.749 billion, an increase of 9% year-on-year; Revenue in Japan was $7.107 billion, down 14% year-on-year; and Revenue in the rest of the Asia-Pacific region was $9.810 billion, an increase of 19% year-on-year.
Apple CEO Tim Cook also said on the earnings call that the record performance for the quarter was helped by the company's most innovative lineup of products and services ever, with market demand across the iPhone 13 lineup being in demand. Among them, China's sales situation is impressive, revenue hit a record high, the number of equipment upgrades also hit a record high, and the number of iPhone replacement devices achieved double-digit strong growth, which is very important for Apple.
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Apple's mobile phone returned to the first place in the Chinese market, and Mac products hit a record high
Strong demand in the Chinese market is becoming a booster for Apple's rapid growth. According to data released by market research agency Canalys, in the fourth quarter of 2021, the iPhone shipped 21.5 million units in the Chinese market, an increase of 40% year-on-year, and the market share reached 25%. Apple has once again become the first in a single quarter in the Chinese market after six years.
The iPhone 13 series is the key to Apple's return to the top this quarter. Counterpoint Research reports show that after the release of the iPhone 13, Apple's mobile phones have remained the number one in sales and revenue in the Chinese market for six consecutive weeks. This is because, on the one hand, Apple has set a relatively low price for the new iPhone 13 (compared with the starting price of the iPhone 12 in a price reduction of 300-800 yuan); on the other hand, the shrinkage of Huawei's mobile phones has left Apple with a market gap, especially its high-end machine market, which is basically "harvested" by Apple.
"Huawei fell, Apple was full", which is a painful lesson for a group of domestic mobile phone brands that intend to impact the high-end market. At present, domestic brand mobile phone manufacturers such as "Rongmi OV" are still in the stage of stacking hardware and competing parameters, and the homogenization problem is very serious. On the contrary, Apple's self-developed chips, smooth experience and rich iOS ecosystem have increasingly become important moats for the iPhone. Although Huawei's early high-end mobile phone users have repeatedly postponed the replacement cycle, this huge market cake is finally eaten by Apple.
The strong performance of the Chinese market and the popularity of the iPhone 13 in the world have also brought Apple's mobile phone back to the first place in the global market share. Canalys' latest report shows that in the fourth quarter of 2021, Apple's mobile phone accounted for 22% of global smartphone shipments, ranking first, while Samsung and Xiaomi ranked second and third with a share of 20% and 12% respectively.
It is worth mentioning that Apple's mobile phone has achieved this result under the pressure of continuous supply chain tension. Due to the shortage of some parts, Apple had to cut production in the fourth quarter, and many customers had to wait a long time to get the new iPhone. Therefore, from the perspective of volume price, the revenue growth of the iPhone business in the fourth quarter is more dependent on the increase in the average sales price, mainly benefiting from the increase in sales of the new iPhone 13, which is consistent with the growth of the company's hardware gross margin.
However, in the company's hardware business, the revenue growth rate of the iPhone is not prominent. In contrast, in addition to the iPad products that have experienced revenue declines due to chip supply problems, the revenue growth rate of Apple's other hardware products is higher than the year-on-year growth rate of iPhone products. Among them, Mac products increased by as much as 25% year-on-year, and revenue exceeded the $10 billion mark for the first time in a single quarter.
Apple's self-developed M1 series chips have become the key to the revenue growth of the Mac plate, which also makes the outside world full of expectations for Apple's "core- making" prospects. At present, Apple has expanded the territory of self-developed chips to power management chips, screen driver chips, Bluetooth headset main chips, fundamental frequency chips, fingerprint recognition chips, 3D somatosensory chips and other fields. Judging from Apple's ability to integrate the vertical industry chain and research and development strength, Apple may establish another chip empire in the future. This will not only allow Apple to get rid of supply chain pressure, but also get more industrial chain profits.
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Uncertainty about Apple Cars
In addition to hardware products, the performance of Apple's software service business in the fourth quarter can also be remarkable. According to the earnings report, in the fourth quarter just this past, Apple's cloud, music, video, payment, and advertising services revenue all hit record highs, and pushed the company's service revenue to $19.52 billion, up 24% year-on-year, higher than analysts expected $18.64 billion.
In response, Apple Chief Financial Officer Luca Mesteri said on the earnings call that the number of paid accounts in Apple's digital content store grew by double digits and reached a record high in every geographic region in the December quarter. In addition, paid subscriptions continue to show very strong growth. Among them, the paid subscribers of the services on the platform have exceeded 785 million, an increase of 165 million in the past 12 months alone.
Over the past 10 years, Apple has continued to launch subscription services such as Apple Music, Apple Card and Apple TV to drive growth in software services revenue. The data shows that from 2013 to 2021, Apple's service revenue increased from $16.051 billion to $68.425 billion, and the proportion of revenue increased from 9.39% to 18.7%.
But for Apple, 20% seems to have become a "ceiling" for its share of service revenue. As can be seen from the above chart, in fiscal 2021, the proportion of Apple's service revenue declined year-on-year, from 19.59% to 18.7%. In the first quarter of fiscal 2022, this share of the figure fell to 15.75%.
Unlike Microsoft, which opened up new growth space with the help of cloud computing business, the proportion of Apple's mobile phone business in the past 10 years has always remained above 50%, and the proportion of hardware business revenue has remained at about 80%, which has worried the outside world about the high proportion of its hardware. After all, the sales of smart phones, computers and other products have faced "ceiling" pressure, and although smart wearable products have maintained continuous growth, it is difficult to support Apple's future growth from the perspective of volume.
Although the software business has a gross profit margin nearly 2 times higher than that of hardware, from the perspective of the company's self-contained ecosystem, Apple's service business itself cannot get rid of the shackles of the hardware business. In addition, Apple, which comes from hardware, relies more on acquisitions and investments to expand its territory in terms of content services, and faces strong pressure from competitors such as Netflix and Amazon.
Therefore, for apple, which is "hardware first", the enterprise "gene" determines that Apple has a certain "congenital deficiency" in software and service revenue.
So, will the real support for Apple's future be the "metacosm" of the hot market or the highly anticipated "Apple Car" project?
It is worth noting that in this earnings call, Cook did not give a positive response to the meta-universe problem that the market is generally concerned about, but said that Apple has invested a lot of energy in the AR field, and there are more than 14,000 AR APPS in the APP Store.
Some sources said that Apple or will officially launch VR headset products this year, and Apple is also developing a lighter AR glasses product, which may be officially released in 2023.
But in the short term, it is difficult for both AR and VR products to contribute too much revenue to Apple.
Obviously, Cook is more concerned with "real" issues than with the slightly ethereal metaverse. In an interview last September, Cook also avoided talking about metaversalities, saying he would stay away from "buzzwords" and prefer to call them "augmented reality."
In fact, it is Cook's pragmatism and pragmatism that have allowed Apple to focus on the construction of the supply chain and the improvement of product sales in the past decade, maintaining good growth in performance and doubling the market value.
But pragmatism and conservatism seem to be separated by a wall. At least from the perspective of the Apple Car project, Apple under Cook's leadership has obviously lost the "first hand".
It is said that as early as the Era of Jobs, Apple had planned to develop its own car brand iCar. Apple's "Titan Plan" launched for the car project in 2014 is in a sense a major "last wish" of Jobs.
However, Apple's Titan plan has remained in secret, so much so that there is controversy over whether Apple's car is a complete vehicle or a self-driving system. To this day, Apple cars still haven't landed, but have only oscillated between shelving and restarting, rumors and facts.
On the contrary, it was from 2014 that Tesla announced the launch of the Model 3 on the one hand, and with the help of the "Gigafactory" plan to rapidly expand production capacity and reduce the cost of electric vehicles; it was also in 2014 that Tesla officially entered the Chinese market and conquered the world step by step.
In any case, with Tesla selling nearly a million and fully autonomous driving technology on the horizon, it's hard to believe that Apple Cars can disrupt the auto industry like the first generation of the iPhone.
On January 3 this year, Apple became the first company in the world to exceed $3 trillion in market capitalization, a figure that even surpassed the United Kingdom, which ranked fifth in the world in terms of GDP in 2020. For a time, there were constant doubts, and some people said that Apple's market value of $3 trillion was too high, and there were many bubbles.
As of now, Apple's total market capitalization is about $2.73 trillion, with a dynamic price-to-earnings ratio of 20 times. Obviously, this is just the normal valuation level of a hardware company, and Apple's strong profitability has effectively defused the doubts about its stock price bubble. In the future, if Apple can make a breakthrough in new product categories outside the current business, it will be possible to create a new market capitalization record in the capital market.