People Walk Past Apple Store Displaying iPhone 17 Pro Poster in Chengdu

People in front of an Apple Store featuring a large poster of the iPhone 17 Pro in Chengdu, China, in October (Cheng Xin/Getty Images)

Apples to apples

Apple is becoming more of a services company and less a product company

Apple reports earnings Thursday.

Rani Molla

Apple is a giant company with lots going on, but for the top-line numbers it reports Thursday, the company divides itself into two main categories: Products and Services. Products includes the hardware Apple is most known for, including the iPhone, iPad, and Macs.

Its Services revenue is a bit squishier and encompasses everything from the money it makes off the App Store, iCloud storage, Apple TV, and the not insignificant ~$20 billion a year Google pays it to be the default search engine on Apple’s products.

Further in its earnings report, Apple provides iPhone revenue, which makes up the bulk of its Products revenue. We believe that’s both a good proxy for products and also for what’s going on at Apple: revenue from its main product, the iPhone, has been stagnating and even declining, while services have increasingly become a more important part of the company’s sales. For the company’s earnings today, the Bloomberg analyst consensus estimate has Apple’s Services revenue at $28.3 billion and iPhone revenue coming in at $49.3 billion.

That transition is probably fine with Apple, since its Services segment is much more profitable than its Products segment: Apple’s gross margin on Services is roughly double that of Products. Last quarter, for example, its Services gross margin was 75.6% compared with 34.5% for Products.

That’s why its fights with Epic Games over outside App Store fees as well as its involvement in Google’s monopoly case are so important to Apple and its stock price.

Regardless of what happens with the company’s latest iPhone today, which so far is seeing better demand than recent models, expect Apple to also emphasize how well its increasingly important Services segment is doing.

#10

Rani Molla2h

Tesla just recalled its beleaguered Cybertruck for the 10th time since the vehicle was introduced two years ago. This time the company recalled about 6,000 of the “apocalypse-proof” vehicles due to what the National Highway Traffic Safety Administration says is an improperly installed “optional off-road light bar accessory” that could become disconnected from the windshield while driving, and could “create a road hazard for following motorists and increase their risk of a collision.”

CEO Elon Musk once said he could sell up to 500,000 of the stainless steel behemoths a year. In the first three quarters of this year, the company has sold only about 16,000.

Jon Keegan

FUNGIBLE FLEET

Microsoft: Forget what we said, we are going to keep spending on capex

Last quarter, the company offered guidance that its capex spending would be lower in the second half of the fiscal year. Yesterday it said spending would go up.

Microsoft Celebrates Its 50th Anniversary With Copilot AI Event

Rani Molla4h

Analysts lower Meta price targets after social media giant says AI capex will keep climbing

Meta may have posted record revenue Wednesday but the stock is deeply in the red in the wake of its third-quarter earnings report, after the social media company said that its capital expenditure on AI would continue to rise.

The earnings prompted a number of analysts to lower their price targets or downgrade the stock.

RBC Capital lowered its price target to $810 from $840. Bank of America Securities lowered its price target to $810 from $900. Barclays, JPMorgan, Deutsche Bank, and Wells Fargo also lowered their price targets on the company.

Earlier today, Benchmark downgraded its rating to a “hold” from a “buy.” Oppenheimer downgraded the company to “perform” from “outperform,” saying the “significant investment in Superintelligence despite unknown revenue opportunity mirrors 2021/2022 Metaverse spending.” Ouch.

Rani Molla

Capex marks the spot

Big Tech capex approaches $100 billion and Dan Ives loves it

AI spending shows no signs of flagging.