$AAPL · Schwab Network · 2026-11-07

Let's continue this analysis of Apple's earnings. Yes, now the situation seems to be turning around a bit. What I found most important is that the gross profit margin has reached the upper limit of their expectations, which is good for them as they are dealing with rising parts costs.

And this is going to be a big topic on the conference call with John Turnus this evening ; It's about how they're handling the incredible price increases of components like DRAM and bringing new devices like the iPhone Duo and XTR laptop to market in sufficient quantities as expected.

And Tinan, this margin of 47.9 percent was better than expected, but Apple said one percentage point of it came from tax refunds. So, how sustainable is this rate when most of the concerns were about gross margins and how much memory costs would impact that ?

Yes, they have mentally decided to lean towards expensive products. The new Duo, aka the foldable phone, starts at $2,000, which is an incredible starting price for any device.

The new laptop XTR, which starts at $2,899 for the 14-inch touch-sensitive model , is incredible, and I hear the top model costs $14,000.

So, people might want to know what this strategy of maintaining gross margins by leaning towards these advanced features and skyrocketingly priced devices is going to look like in the future.

It seems that the Chinese don't have much problem paying such prices. I know that Apple has had to lower prices in that particular market because the nature of work there is different, but do you think there are any concerns about not meeting revenue targets in China?

I think this is consistent with the weak conditions we have been hearing about the Chinese market from all vendors throughout the year. The rate of new phone purchases or replacement cycles in China are not strong.

There is a lot of discussion about after-market discounts on phones for reuse. And this is part of a trend where some e-commerce giants in China are offering various types of discounts to sell products.

The market was quite volatile throughout the year. So I'm not sure if this is just an Apple problem, but rather a broader problem with the smartphone market and the increasing price of mobile.

Tim, when we look at service revenue, we see it continuing to slow. This was higher than the previous quarter, but our growth momentum is slowing. How important is this number here and how much of a role can the iPhone play in overcoming this slowdown ?

Yes, they are emotionally linked to each other , as the device is expected to bring with it the sale of services. And the services will be better, because when you're dealing with high component costs, naturally you'll want to sell more units of software and media.

So I think we need to know on the new CEO's conference call tonight how much the services will benefit from the new type of foldable device, the new version of the Pro model, and all the camera features that come with it.

It's always been assumed that there's a 'halo effect' of Apple's device changes in services revenue, but it's been a while since we've heard from a CEO how one impacts the other.

Tim, what else would you like to hear from Turnus tonight on his first earnings call and what are your expectations for him in light of this big event ? I want to know, since Tim Cook is stepping down and he was the master of the supply chain, about that issue.

His talent as Chief Operating Officer was to ensure that Apple received parts and maintained production capacity for delivery , and while he wasn't always perfect , he was generally successful.

Now that John Turnas has taken over, you might be wondering: What kind of skills are still being developed from what Tim Cook has developed ? And how does he see ensuring adequate supply of essential components for phones such as DRAM, NAND flash, etc., as well as gaining production capacity from the supply chain?

I think supply is the biggest problem for this company right now.

Tim, I was watching and honestly I was surprised myself that Apple is currently the most valuable company in terms of market cap. It is now positioned above Nvidia. It crossed them on October 30th , went down, and rose again; Usually they can't hold the top spot , I think it's happened three times before.

What is Apple's guidance and John Turnas' comments on maintaining their position as the world's most valuable company? If I were John Turnus, I would talk about how they would handle the current market's incredible inflation, which is happening to the materials needed to make their products, and what the return on capital would be in the aftermath.

I think there's a bit of patience for Apple now , as long as they can bring enough devices to market to meet expectations. But you'll want to hear what the situation is like after the semiconductor market turmoil , which has increased costs for everyone, including Apple.

What does this mean for margins? What does this mean for capital returns a year or two from now?

And Tim, a big reason the stock performed so well is that it was largely immune to the sell-off , because they didn't spend like crazy, as many analysts would say. Especially when you look at other 'Mag Seven ' and hyper scalar stocks.

However, its trading multiple is quite high. Some of this is likely related to the so-called ' anti-AI' and 'anti-capex' trades. It has been viewed as a more defensive investment, but do you think it is an overvalued stock?

Do you think we'll find out anything tonight that would justify this valuation?

Historically, this has been a high multiple for Apple for a long time. It has gradually become more and more expensive. And now, as you said, everyone is leaning towards quality , because they're not committing all their free cash flow spending.

It seems to me that there is something waiting behind the scenes , because I don't think they have done a very good job of staying ahead of the software wave, especially in AI.

I expect at some point they will have to invest more than the current rate. So, yes, I think it's a logical question that now Apple is being praised for not spending like crazy , but what will the situation be like in a year or two when there are more public AI companies like Anthropic and OpenAI ? How will they fare in this expanding universe ?