Tim Cook’s last earnings call comes at momentous time for Apple

Tim Cook’s final earnings are as follows: Apple The week the iPhone maker reached and exceeded $5 trillion market cap occurred, CEO said Nvidia As the most valuable company in the world But there’s no time to celebrate.

Even as its stock trades at a record price this year and is up 25 percent, outpacing its megacap peers, Apple is facing a memory crisis and chip production capacity rush that is forcing the company to raise prices of devices. Meanwhile, the fact that Apple has not yet introduced a redesigned Siri to the public is the most glaring example of how far the company is behind in artificial intelligence.

The challenges that arise when Cook steps down as chairman of the board on September 1 will fall into the hands of 25-year Apple veteran and hardware chief John Ternus. Ternus said little about its previous earnings release, which came shortly after the CEO transition was announced in April.

Investors are likely to want more from Ternus on Thursday after the company reports third-quarter financial results. He will be only the second CEO since Steve Jobs resigned a few months before his death in 2011. Cook’s 15-year run to the top was highlighted by a fourteen-fold increase in the company’s valuation, despite its failure to build a major hardware platform after the iPhone and its struggle to find a large market for its high-priced Vision Pro virtual reality headset launching in 2024.

“Tim Cook, he’s a really talented supply chain operations guy, and I think he’s done a phenomenal job of driving the environment,” Melissa Otto, head of research for Visible Alpha at S&P Global, said in an interview. “We will at least get some visibility or commentary into the current environment and how they navigate it.”

Last month, Apple raised the starting prices of the iPad and Mac by at least $100, citing a global memory shortage; For some models, there was an increase of more than $ 1,000. Analysts expect iPhone prices to increase this year. Meanwhile, Apple on Tuesday announced a program with buy now, pay later lender Klarna that will let U.S. customers lease an iPhone for up to two years starting at $17.99 per month.

Price increases of up to 20% on some devices were announced just before the end of the quarter, so their effects won’t be felt until the current period. Analysts expect to see total revenue growth of about 16% in the quarter ending in June, with that growth figure expected to slow to 12% in the current period.

More important to investors is what higher prices will do to demand in Apple’s December quarter, its biggest of the year.

Counterpoint Research sees total smartphone sales are down almost 14% this year; This is the steepest decline since 2013. The part of the market most at risk is the lower end, where manufacturers have less room to absorb rapidly rising memory costs. This largely means Android phones.

Goldman Sachs analysts, who have a buy rating on the stock, wrote in a note this week that Apple could signal “market share gains given price increases at rivals.”

Apple hasn’t raised prices or changed its iPhone forecasts even after its June warning, but some analysts are tweaking their models. Some analysts say the raises could actually boost earnings because of the company’s famous brand.

“We continue to believe that Apple’s fundamentals are very strong and that numerous price increases could lead to an increase in revenues and earnings per share over the next 6-18 months,” analysts at Morgan Stanley wrote in a note last week. The firm recommends buying the stock but cut its Mac forecasts for the September quarter by 8% due to supply difficulties.

The memory shortage is the biggest challenge facing Apple in the short term, but the more significant risk to its business in the long term likely relates to its AI strategy.

Rather than spending heavily on AI infrastructure to build or deliver advanced models, Apple will use most of its AI technology Google It also uses the cloud. While the hyperscalers are all spending over $100 billion in capital spending this year, and some are likely to exceed $200 billion, analysts expect Apple to spend just over $11 billion, including $3.4 billion in the latest quarter, according to FactSet.

“While Apple was initially criticized by many investors for not participating in the Masters investment cycle, investors are coming around to Apple’s industry-leading free cash flow,” analysts at Baird wrote this month. They recommend buying stocks.

Before Google, Apple’s main AI partner was OpenAI, through which ChatGPT was integrated into Siri and other parts of the operating system. That partnership nearly fell apart, and Apple filed a lawsuit against OpenAI on July 10, alleging trade secret theft. OpenAI denied the claim.

To gain public interest, Apple needs a redesigned Siri, which launched in beta in June and is expected to ship with new iPhones this fall. It then needs to follow this release with more AI features to keep up with an industry moving at warp speed.

With the acquisition of Ternus, the company may be preparing for more aggressive artificial intelligence investments. Under Cook, the company burned so much cash that it repurchased more than $1 trillion in stock during his tenure.

Apple made a small change to its stated policy regarding the management of cash in its last earnings report. Apple has said since 2018 that rather than sticking to its goal of being “net cash neutral,” or having cash on hand equal to total debt, it will evaluate its cash and debt independently, which could free up resources for artificial intelligence.

“We’re investing in the business first and foremost, and then we intend to return excess cash to shareholders,” Apple CFO Kevan Parekh said on the April call.

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