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The Leap Week: Did Apple Really Have a Record Quarter? (lapcatsoftware.com)

Posted by msmash on from the leap-week dept.

An anonymous reader shares a blog post: Apple stated that Q1 FY2017 was an all-time record for quarterly revenue. The media dutifully and mostly uncritically spread this "great" news for Apple. Technically the claim is true, the revenue was an all-time record. True but misleading. Although Apple didn't lie as such, you might say there was a sin of omission, and a definite spin of the facts. Most Apple fiscal quarters are 13 weeks long. Once in a while, however, they need a 14 week quarter. You might call it a "leap quarter". There was a good explanation of this financial practice a few years ago in Slate. Apple's Q1 2017 was a 14 week quarter, for the first time since Q1 2013. John Gruber writes at DaringFireball, "Adjusted for the extra week, Apple actually had another down quarter."

27 of 53 comments (clear)

  1. Of course by aaarrrgggh · · Score: 4, Informative

    Anyone that watches Apple knows this, and it isn't that big of a deal. Next year they will be penalized by IT in the same vein.

    It really doesn't say much though, unless you assume revenue was flat for the quarter. Christmas being on (iirc) a Thursday actually has a bigger impact as the "holiday season" is longer. Considering the discount Apple is at in the market compared to MS, GOOG, FB, CRM, it was a "record" quarter. Most of those companies also end their fiscal year on the last Saturday of the year.

    1. Re:Of course by Anubis+IV · · Score: 5, Informative

      Anyone that watches Apple knows this, and it isn't that big of a deal. Next year they will be penalized by IT in the same vein.

      Exactly. Next year they'll have that much further to have to go if they don't want to report a down quarter, so it's of virtually no net-benefit to them.

      That said, it is of interest that the last few times they've had a 14-week quarter, they've mentioned it right at the start of their briefing in order to set expectations, whereas there was no mention of it this time. I don't think they were trying to hide anything, but I don't think they were doing the media any favors. In fact, I'd wager that they were trying to let the media jump to the obvious conclusions so that they might benefit from a short-term reversal in the narrative that's been playing out.

      Of course, it's also questionable whether or not they even would have had a down quarter had it been a 13-week quarter, given the positioning of Christmas within the quarter. The summary pulled just the "had another down quarter" portion from DaringFireball's comments, but the original quote actually continued on with:

      I don’t think it’s quite right to ding the quarter by a full 8 percent — the entire last week started with Christmas day — but surely some sort of correction is necessary for year-over-year comparisons.

      Ideally, we'd consider the last 13 weeks of the year, eliminating the first week from their 14-week quarter. Unfortunately, Apple doesn't break the numbers down so we can do that, which means our best approximation is to knock their numbers down by 1/14th. Doing that, however, results in us giving as much weight to their first week—which was likely their weakest—as we give Christmas week, thus unfairly punishing them for having a longer quarter. Obviously, that would result in a greater downward shift than is warranted.

    2. Re:Of course by wertigon · · Score: 1

      No, it's probably a down quarter for 13W, because many people shop on the sales directly after x-mas or get promised a cell phone at x-mas and buy it afterward because they don't know the color they'd like or something like that.

      Oh well... :)

      --
      systemd is not an init system. It's a GNU replacement.
    3. Re:Of course by Anubis+IV · · Score: 1

      No, it's probably a down quarter for 13W, because many people shop on the sales directly after x-mas or get promised a cell phone at x-mas and buy it afterward because they don't know the color they'd like or something like that.

      The post-Christmas week is always part of their fourth quarter financials, so it makes no sense to remove it from consideration like you're suggesting we do.

    4. Re:Of course by Anubis+IV · · Score: 3, Interesting

      The tech crowd echo chamber had a lot to say about the headphone jack disappearing and the new MacBook Pros being a lousy update, but the unit sales on both of those devices point to the masses simply not caring. Both of them were stated to be setting sales records for Apple even before these financials came out.

      I do agree that there is plenty of criticism warranted against Tim Cook's Apple. I feel as if he's fallen into the profits trap that Steve Jobs famously talked about when he was asked in 1995 about why the Mac failed to be a bigger deal. But I also see this whole "no innovation" argument as a bit of a double standard. Under Jobs, they put out evolutionary products (i.e. incremental updates) each year, but only put out revolutionary products (i.e. Mac, iPod, iPhone, and arguably the iPad) once per decade or so. The fact that they haven't had one since his 2011 death is not surprising, though it doesn't bode well for the company either. They clearly thought the Watch would be a revolutionary product, but, as with the iPad, it took them a couple of years before they even realized what it should be used for, let alone to start marketing it so that people would understand the benefits.

    5. Re:Of course by Anubis+IV · · Score: 1

      especially in a lineup of devices replacing ageing and obsolete equipment with very high levels of vendor lock-in. What's a person gonna do? Throw away their software library and adopt another platform?

      The previous MacBook Pro and iPhone updates benefitted from those same factors, yet these latest updates are the ones that set new sales records. The fact that they're seeing sales growth suggests that some new factors are at play, rather than factors that have been true all along, such as the ones you said.

      In the case of the MacBook Pro update, my best guess is a combination of the tech community completely missing the appeal of the devices (i.e. par for the course, though I include myself in that group, since I don't get the appeal either) and that there was a lot of pent-up demand as a result of the update being long-overdue. The numbers Apple posted shortly after the launch indicated that their sales were 7x that of their previous MacBook Pro update, so I don't think it was just one factor or the other. I think both were at play.

      For the iPhone 7, we need to look back a few years to make sense of things. The iPhone 6 was not just a typical record-breaker in terms of iPhone sales: it shattered the previous records by a HUGE margin. The iPhone 6s that followed it would have been a record-breaking model, but the iPhone 6 was such a massive outlier that it resulted in year-over-year declines. But now, the bulk of those iPhone 6 users are starting to upgrade on the typical two-year cycle, so that translates to higher sales on the iPhone 7, resulting in a new record-setting model.

      Of course, if Apple can't come out with something outstanding for next year's model, we can probably anticipate lower or equal sales for the next iPhone, given the nature of the typical upgrade cycle.

    6. Re:Of course by Anubis+IV · · Score: 1

      Let me clarify what I was getting at, since it seems you aren't picking up what I was putting down.

      You know 90%+ of desktop users run Windows, so it must be *a lot* better than macOS and Linux

      This seems to be the crux of the misunderstanding. I wasn't arguing that these were better products. I was pointing out that consumer demand for these products isn't being driven by the things the tech community cares about, which should be plainly obvious to anyone who does an Apples-to-Apples comparison of their current sales figures with their previous sales figures. If sales go up relative to previous years when they drop a feature the tech community cares about, it should be evident that the tech community's desires are not aligned with those of the general population. That's all I was getting at with the statement you quoted.

      So, no, I don't think I'm relying on flawed logic here. You're ascribing conclusions to me that I wasn't jumping to.

      That's the Microsoft effect, they have lock in through iOS and macOS so if you are tied to those platforms you have no choice on the hardware, they could sell shit on a stick and if it ran iOS and had an Apple logo you'd buy it.

      This, however, is faulty logic. The latest iPhone and MacBook Pro outsold the previous models (in the case of the MacBook Pro, it did so by a factor of 7x in the launch period), but Apple's previous models benefitted from lock-in just as much as their current models, so, contrary to what you're saying, it should be clear that lock-in isn't the factor driving changes in demand. I've already commented elsewhere with regards to what factors may actually be at play, so I'll refrain from repeating myself here unnecessarily.

      Suffice to say, no, I'm not saying more sales = better product, and I think it's disingenuous to suggest that vendor lock-in is a sufficient explanation for any of this. It's certainly a factor that's at play, but if it's the same now as it's always been, it should be obvious that it doesn't explain the changes we're seeing.

    7. Re:Of course by Anubis+IV · · Score: 1

      Your response makes no sense to me (what don't you disagree with? what did they announce now? what's slimy?), so I'll address it in generalities.

      Anyone paying attention has known for years that this particular quarter would be a 14-week quarter for Apple, since their fourth quarters always end on the last Saturday of the calendar year. They didn't suddenly and arbitrarily choose to make this quarter longer to pad their numbers. It just happened to be that way. Other companies have to deal with leap quarters as well, or else have other means for dealing with these sorts of issues. This isn't a problem that's unique to Apple. The fact that it just happened to land right now for them is entirely coincidental, not strategic, though there is a strategy in the way that they're using it to their advantage by not mentioning it up front in the briefing.

      they don't release sales figures unless it's beneficial to them.

      Apple consistently releases quarterly sales figures for all of their major products except the Apple TV and Apple Watch and is legally obligated to do so until they announce otherwise. That's true for most of the big companies in this space. If they suddenly stopped reporting iPhone, iPad, or Mac sales numbers, it'd be huge news and a major indicator that sales had fallen off a cliff (in much the same way that Amazon's refusal to announce hard numbers for the Fire Phone and other products shortly before their demise was taken as an accurate indicator of poor sales).

    8. Re:Of course by thegarbz · · Score: 1

      The previous MacBook Pro and iPhone updates benefitted from those same factors

      Err no. This has been one of the longest running gaps in the MacBook refresh cycle, and the iPhone 6 had a lacklustre reception too. The iPhone 5 introduced a significant leap from the 4. The 6 for the most part was uninteresting (unlike the 6+). There were lots of people holding out for a 7.

    9. Re:Of course by Anubis+IV · · Score: 1

      Regarding the gap with the MacBook Pro, I quite agree that that's the biggest factor at play. I didn't realize you were getting at quite that point, so I apologize for arguing about something that we actually agree on.

      That said, when I said the factors were the same, I was intending to speak primarily towards your comments regarding vendor lock-in. The lock-in has remained unchanged over the years, so it alone doesn't produce changes in sales. It does, however, enable other factors (e.g. pent-up demand) to drive changes in sales. That's what I was getting at when I said it hasn't changed. Put differently, they haven't improved their lock-in by a significant margin anytime recently, so it alone can't explain any growth we see in their unit sales.

      the iPhone 6 had a lacklustre reception too

      That's not at all backed up by the facts (see Q1 '15). Again, I'm talking about units sold, and in that regard it's unquestionably true that the iPhone 6 had anything BUT a lackluster reception. You can argue that some reviewers panned it, but that's true of every model and not at all relevant to anything I'm discussing. Up until the iPhone 6s, each model broke the unit sales record set by the previous model, but the iPhone 6 was a massive outlier in the degree to which it broke the record, and it's my belief that the iPhone 7 is benefitting from the uncommonly large number of iPhone 6 users looking to now upgrade.

  2. Old News by ghoul · · Score: 5, Informative

    Already been discussed on Slashdot day of earnings release Fudging the Math

    --
    **Life is too short to be serious**
  3. Second derivative != profit by goombah99 · · Score: 2

    So the quarter before the last quarter was shorter than average but I didn't see any articles saying that was misleading because it was a short quarter. No this is only brought up when the newas sounds good.

    In reality what's being argues about here is the rate of growth of the rate of income. a second derivative. Apple's trend is actually growing in revenue steadily steadily.

    --
    Some drink at the fountain of knowledge. Others just gargle.
    1. Re:Second derivative != profit by Anonymous Coward · · Score: 1

      So the quarter before the last quarter was shorter than average but I didn't see any articles saying that was misleading because it was a short quarter.

      Was it a short quarter? TFS makes it sound like most quarters are 13 weeks, with an occasional 14 week quarter. In order for it to be a short quarter, it would need to have been less than 13 weeks.

      I still agree that these people are grasping at straws in order to hate on Apple, but I don't really understand your logic.

    2. Re:Second derivative != profit by TheFakeTimCook · · Score: 1

      So the quarter before the last quarter was shorter than average but I didn't see any articles saying that was misleading because it was a short quarter. No this is only brought up when the newas sounds good.

      In reality what's being argues about here is the rate of growth of the rate of income. a second derivative. Apple's trend is actually growing in revenue steadily steadily.

      Exactly. If you stand back a little ways, the "jaggies" start to blur together, and you start seeing the "Trend" a lot easier. And, overall, Apple's "trend" looks a LOT healthier than say, Microsoft's...

  4. Addressed In the Call by Anonymous Coward · · Score: 1

    Apple addressed the 13 week vs 14 week difference head-on in the conference call:

    We had the benefit of a 14th week during the quarter this year, but this was offset by four factors. First, this year we grew China inventory significantly less than a year ago. Second, iPhone 7 launched earlier in the September quarter compared to the iPhone 6s launch the previous year, creating a more difficult comparison for the December quarter this year. Third, the stronger U.S. dollar affected total revenue growth this year by 100 basis points. And fourth, our year-ago revenue included the benefit of a one-off $548 million patent infringement payment. Also, strong customer interest left us in supply/demand imbalance for several of our products throughout the quarter this year.

    Also:

    The App Store is the one that is driving significant growth right now. I said in my opening comments that we grew 43% 13 weeks over 13 weeks, a little even more for the quarter, right.

    1. Re:Addressed In the Call by itsdapead · · Score: 2

      Or, to put it another way, the apparent quarter-on-quarter growth that they were happy to see trumpeted in all the headlines was less than the "measurement error" due to the way the figures were calculated. (As, to be fair, is any quarter-on-quarter decrease of the same size). So, a flat quarter then...

      Of course, for a quarter during which Apple's main competitor in the phone market (Samsung) had to withdraw their new flagship phone, Apple's iPhone 7 (a completely new phone c.f. last year's 6s spec bump) had its first holiday season (even if the quarter missed out on the launch), as did the Watch 2, and they released their new MacBook Pro laptops after an 18-month wait, not having a significantly better quarter seems a bit embarrasing.

      --
      In a survey of 100 programmers, 111111 thought that duck-typing was a good idea.
    2. Re:Addressed In the Call by itsdapead · · Score: 1

      Your Apple hate makes you powerfully stupid

      Funny. I'm typing this on a Mac. Got an iPad too. I just ignored the little cartons labelled "drink me" that they include in the box... was that important?

      --
      In a survey of 100 programmers, 111111 thought that duck-typing was a good idea.
    3. Re:Addressed In the Call by Some_Llama · · Score: 1

      yes, if he did worse... in athletics you try to do better each time, when you start to decline you either turn to coaching or do something other than sports.

      everything that has a beginning has an end, the sign of the end is decline. but keep holding onto that dream.. maybe you could dig up some advice from older apple employees as well.

      i'll let you borrow my shovel.

  5. Re:News for financiers by NatasRevol · · Score: 1

    Tech company finances don't matter to nerds (who probably in sum hold billions of dollars in tech company stock)?

    Or are you just a generic Apple hater?

    --
    There are two types of people in the world: Those who crave closure
  6. Leap Week + Reduced Competition by PortHaven · · Score: 4, Insightful

    So when you combine an extra week, in combination with a quarter in which your #1 rival fails to deliver their competing phone leaving a gap in the 2.5 year upgrade pattern. Yup...

    The quarter that the Samsung S8/Note 8 arrive will be much different and more realistic.

    1. Re:Leap Week + Reduced Competition by Anonymous Coward · · Score: 1

      I'm sure it will explode onto the scene.

  7. Re:Apples and Chocolate by DontBeAMoran · · Score: 1

    What the hell do you mean, 20g per day? Our current ration is already way too much chocolate!

    --
    #DeleteFacebook
  8. Re:News for financiers by xxxJonBoyxxx · · Score: 1

    >> company finances don't matter to nerds (who...hold...company stock)

    In additional to Apple, also hold own a bunch of stock in GM, Exxon, and other random companies. But I don't need to hear about their quarterly earnings on Slashdot - there are plenty of other outlets that do a hell of a better job of that.

  9. Re:News for financiers by Austerity+Empowers · · Score: 1

    Most nerds I know given RSUs from their employers, including nerds who work at Apple, sell their company stock pretty much as soon as it vests. The logic, which I don't argue with, is that by being employees they already have far too many eggs in that one basket. Given that most RSUs given to employees in every company vest over a 4 year period, that basket is pretty fucking heavy already.

    There's no real narrative to lock on to here, sell it and diversify, if your company tanks and you get laid off, you will have money left. Anything people in the media talk about is nonsense, they don't know shit and most of them have a paid agenda. In fact, as a rule, investors don't know shit, that's why they traded their money for shares in someone else's business, rather than starting their own. They are highly susceptible to this media coverage of nonsense, which creates a market for more nonsense.

    The only "news" here is that investment in Apple right now is primarily speculation, it is not about company fundamentals, it's a waste of time to debate this thing. If you speculate that they are going to deliver the next big thing (which isn't a macbook, and isn't even an iPhone, the markets for those products are saturated), then you invest, knowing that when Tim puts it on the stage people will buy it up sight unseen. If you think Microsoft can deliver, you invest there. But if you had money and you wanted to bet on Apple making the product or Microsoft, you're pretty much an idiot to put your money in Microsoft, people avoid their products in droves...even if they aren't as bad as we'd expect from them.

  10. Re:News for financiers by NatasRevol · · Score: 1

    My dad retired about a decade ago. His company stock was ~70% of his portfolio.

    He lives off dividends (VERYnicely) AND the stock has grown more than anything else in his portfolio over that time. About 2x the S&P 500. He's literally wealthier now than when he retired.

    He tells his financial advisor to ignore his company stock and just help manage the rest of it.

    --
    There are two types of people in the world: Those who crave closure
  11. Re:Made no sense since Apple cut iPhone production by Anonymous Coward · · Score: 1

    Its always amusing to find people who actually appear to believe this nonsense. Also, a bit scary.

  12. Alternative facts by twebb72 · · Score: 1

    Its not a down quarter... Just alternative facts