Apple is scheduled to announce its Q4 and FY 2017 earnings on November 2. For years, that would have meant greater heights of accomplishment. But things have changed in some ways. Record high prices for the coming iPhone X might provide a stunning success, or push many consumers away. The company relies overly on the iPhone line for the bulk of its revenue and profits.
There have been at least one sign that Apple has stopped reporting some data that might show less robust results. With the coming announcement, there are some numbers to consider beyond revenue and profit that might help divine the company's current direction and near-term future.
iPhone unit sales
Everyone that follows Apple checks the number of iPhone units sold. They represent the financial life blood of the company. The unit sales have a good chance of looking relatively grim this time. The iPhone 8 hasn't captured the imagination of consumers. Maybe they're all waiting for the X, or perhaps they don't see enough compelling new features or capabilities to buy yet another phone, given that the carriers, at least in the U.S., largely have given up on subsidizing phones. It's a lot of money to shell out. Without the drive of the iPhone, revenue could take a sharp drop.
If unit sales are off, that could pose a problem not just immediately, but in January as well when the quarterly results that include holiday sales are announced. The iPhone X will have a much shorter sales window than usual, with pre-sales starting in late October. So, there could be difficulty making up for the lost time.
iPhone average sales price
The iPhone average sales price is important because it is the ultimate cap on the main revenue stream and on profitability. Divide the total sales for the iPhone for a period by the number of iPhones sold to see the ASP. The average ASP per quarter from 2012 through Q3 of 2017 has been $633. If the result is near or below $600, then there's a problem as it indicates people are largely favoring less expensive models.
Other products sales
Apple badly needs another hit to take the pressure off iPhone sales. One is the iPad, which saw a 15 percent unit increase year-over-year in the quarter that ended in June -- significant given that the product's sales have been falling for years now. The "other products" category, which includes the Apple Watch and Apple TV, was up 23 percent in revenue, although there's no unit breakout and it's still the lowest reported sales category.
Services have gained importance and are the second largest source of revenue next to the iPhone. This could be the way forward for Apple -- assuming that the products (mostly the iPhone) that provide the services don't take a significant hit.
Research and development is a fundamental expense for companies, particularly those in industries like high tech, where innovation and new developments are the basis for success. If you don't spend, you don't get results for the most part.
There was a period of time, like around the development of the iPhone, where Apple seemed to be cranking out innovation effortlessly and inexpensively. The company spent hundreds of millions a year, but that represented only 1.5 percent of revenue back in 2008, as things really seemed to be cranking. The percentage dropped as revenues grew at a rate you might expect from a startup and not a mature company, although R&D spending in absolute terms rose.
R&D spending has been speeding up at an accelerating pace. Not to the same degree as revenue growth, so it's not like Apple is unable to afford the investment. However, the company isn't seeing the same degree of commercial payoff in new exciting product lines as it once did.
Not all R&D has to pay off tomorrow, or even in a few years. It does have to eventually. The disconnection between the level of spending and the result in new growth areas has continued to expand and raises the question of whether Apple has the proper control over R&D.
This is a trick sign, because Apple no longer reports it. For years, Apple broke out its advertising costs -- part of sales, general and administrative (SG&A) -- in footnotes. Here are the numbers from 2008 through 2015.
- 2008: $486 million
- 2009: $501 million
- 2010: $691 million
- 2011: $933 million
- 2012: $1 billion
- 2013: $1.1 billion
- 2014: $1.2 billion
- 2015: $1.8 billion
In its 2016 10-K statement, Apple stopped breaking out how much it spent on advertising. Perhaps this was to keep competitors, or ad agencies, guessing. Or maybe it was to stop signaling how keeping the train running required a larger and larger expenditure.
Not that Apple can't afford it. But it would suggest that those products are jumping off the shelves as easily as they did at one time. If you look at the progression, it seems an easy guess that last fiscal year the company broke the $2 billion mark. This year? We won't know for sure, but this number has marched upward for some time.
As of the last information available, the growth rate is accelerating. Will product lines benefit from the advertising, or does the amount of marketing show that Apple's innovation and design aren't enough on their own to reach more customers?
Anything that Apple stops reporting
So far, we've seen advertising costs and the first weekend unit sales of iPhones dropped as reported metrics. The company has never mentioned how many Apple Watches it has sold. People should be on the lookout for any additions to the list. Each provides at least the potential for areas the company has come to find embarrassing and, therefore, worth continued attention.