Apple Device Upgrading Is Improving, Apple’s Underpenetrated Services Business
Today's Above Avalon Daily update includes the following stories:
Apple Device Upgrading Is Improving
Apple’s Underpenetrated Services Business
Happy Monday. This past Friday’s update included my initial thoughts on Apple’s strong earnings and how my numbers compared to Apple’s results.
The following snippet was from Friday’s update:
“Apple’s financials are now showing the impact from management doubling down on its ecosystem via:
More frequent and substantial product updates (thanks in big part to Apple silicon). One way of getting existing users to [up]grade is launch new and exciting product updates that add genuine value to people’s workflows and lives.
Greater awareness on management’s part that Apple’s ecosystem is severely under-penetrated from a Services monetization standpoint. Apple’s AI strategy is flying under the radar with the company well-positioned to leverage its role as distributor of AI-infused apps and services to an ecosystem of 1.5B+ premium users.”
There’s much to unpack from that snippet regarding two of the major takeaways from Apple’s earnings: Improving Apple device upgrading trends and Apple's Services growth potential.
Let's jump right in.
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Consumers Spending Less on Electronics, Impact on Apple, Swiss Watch Sales Data for 2022 (Daily Update)
Hello everyone. Happy Wednesday. It feels good to get back into the swing of things after a little time off.
We kick off today’s update with Neil’s thoughts on Walmart and Home Depot pointing to major shifts in how consumers are spending their money. We look specifically at the impact the trend will have on Apple. The update concludes with an examination of Swiss watch industry sales for 2022 and why Neil thinks Apple Watch continues to impact the Swiss.
Consumers Spending Less on Electronics
Earlier today, a WSJ article with the headline “Walmart, Home Depot Give Cautious Outlook as Shoppers Spend More on Basics,” jumped out at me. Here’s Sarah Nassauer:
“Consumers are spending more on food and less on electronics, apparel and home improvements as inflation and changing habits zap demand for many goods, two of the country’s largest retailers reported Tuesday.
Walmart Inc. and Home Depot Inc. have enjoyed robust sales for much of the past two years as people looked for bargains or fixed up their homes. Now more of shoppers’ budgets are going to higher-priced groceries and travel, executives said.
For Home Depot, which primarily sells home-improvement goods, that dynamic meant flat sales in the most recent quarter. For Walmart, which relies on groceries for the majority of its sales, it meant larger-than-expected sales growth. But executives from both companies said consumers’ spending habits pressured profits and they gave muted outlooks for the rest of the year amid economic uncertainty.
‘Customers are still spending money,’ said Walmart Chief Executive Doug McMillon. ‘It’s obviously not as clear to us what the back half of the year looks like.’”
The following slide from Walmart’s earnings release serves as a helpful summary of what the largest retailer is seeing:
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