People are no longer looking at Apple as just an iPhone company: Analyst

Senior Research Analyst at Neuberger Berman Dan Flax joined Yahoo FInance Live to break down Apple’s recent earnings report and what the numbers indicate going forward.

Video Transcript

SEANA SMITH: We want to stick with Apple. And for that, we want to bring in Dan Flax. He’s a senior research analyst at Neuberger Berman.

And Dan, we’re looking at the stock under pressure a little bit here, off just around 1%. But it’s the first quarter that Apple has had revenue over $100 billion, coming in $111.4 billion, the iPhone revenue beating expectations. What do you think of these numbers?

DAN FLAX: I think, Seana, the numbers are, obviously, solid. I think what’s important here is the story of innovation and really this broadening of the revenue drivers. People are no longer looking at Apple just as an iPhone company. We’ve talked in the past, of course, about services.

I think the wearables story and Apple’s entry into newer markets like health care deserve a little bit more attention. So we see a very interesting growth opportunity here over the next couple of years. But, of course, it’s reliant on continued execution on product cycles.

ADAM SHAPIRO: When you talk about that, and I’m glad you brought up wearables, because I’m pulling up the report. And, I mean, year-over-year, the growth in wearables and accessories from $10 billion to $12.9 billion. I mean, no one’s going to be mad at that. But you pointed out that the wearables are kind of like cool stuff. For instance, I hope I don’t ever need it, but the ECG app, the electrocardiogram within your watch– how serious is that kind of stuff to keep growing Apple?

DAN FLAX: I think that we’re just getting going. And partly we’ve seen with the blood oxygen monitoring, the ECG app, emergency calling, these features are helping to save peoples’ lives. Apple, as we know, is partnering with research institutions, universities, hospitals to really push the envelope in terms of what we can do here.

And I think part of the magic is, of course, being able to tie it together across the different devices in a fun, secure way. So I think the health-care story is something we’re going to be talking a lot more about. And there’s a significant opportunity for Apple to really make its users lead healthier and fitter lives. So very early, but very interesting.

SEANA SMITH: Dan, when we were going into this report, we talked about a lot last quarter the fact that there was lockdowns and people staying at home. A lot more people are buying iPads and Macs than they had in the past. How long do you expect these types of tailwinds to persist? Because when you take a look at that Mac revenue number, it was much better than it was a year ago, but just missed Wall Street expectations.

DAN FLAX: Well, of course, as we appreciate, Seana, in any given quarter, there are going to be product cycles. And Apple, of course, just came out with new Macs using its own silicon. And so I expect over the next 12 to 18 months, we’ll see more products, more new Macs which leverage Apple’s silicon.

I think to the bigger question is to how long this lasts. I think we are entering and we are going to continue into this new paradigm. Of course, we all expect vaccines to help us return to a somewhat more normal existence. But it’s clear during the pandemic and in the world after that technology is going to play a much more important role. So I see good growth prospects for both iPad and Mac beyond this period.

But, of course, it does come down to the innovation. And so Apple has to invest, innovate. And I’ll add that a big part of the story here is its ability to empower developers. Apple’s paid out over $200 billion to its developer community since 2008. And they, of course, can build on top of what Apple does. So there are a lot of key elements to driving that growth.

SEANA SMITH: Hey Dan, going off of that a little bit, when we talk about Apple transitioning from Intel chips to using its own chips, how big of an impact do you expect this to have on Apple’s Mac margins in the long run?

DAN FLAX: I think it can help the margins. But what’s important is that if they’re building the products from the ground up– the silicon, the system, the software, the services– Apple has a much better idea of its roadmap and has more control over the roadmap. And because they’re designing their own silicon, they’re able to optimize it for their systems. And we’ve seen from the reviews and the performance of the new Apple products with its silicon that it’s outstanding.

So I think cost is one benefit. But the control over the roadmap and the ability to really drive it is going to be key to this. And frankly, it’s going to help unveil a whole new world for Mac users, I think, over the next couple of years.

ADAM SHAPIRO: I entered that whole new world but the wrong way. I got a traditional PC Mac kind of situation. I didn’t get the MacBook. Well, let me ask you this, when I look at these numbers with the iPhone, $65.6 billion in revenue, that’s still going to be– that’s going to be the driver for years and years, is it not? I mean, the next closest revenue is wearables. And that’s nowhere near surpassing iPhones.

DAN FLAX: Well, if we look at the pieces, we talked about services before, a $50 to $60 billion business, which could ultimately, I think, get to $100 billion plus. Wearables, I think, can grow tremendously, can more than double over the next several years. And I think a look at the history here in terms of the iPod we all remember, that was an important business for Apple. But the company is all about innovating. It will cannibalize its own products as it comes out with new offerings.

So I do think their growth, there’s, obviously, good growth in the iPhone franchise, which is durable, as we’re seeing. But I think the other businesses are going to be able to help drive this company forward. And as I look out to the next few years, it’s going to be a continuation of this idea of reinvention and innovating and taking risks and really pushing the envelope to see where the technology and the user experience can go.

SEANA SMITH: All right, Dan Flax, always great to speak with you, a senior research analyst at Neuberger Berman.

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