Doug Astrop, Managing Partner at Exponential Investment Partners, breaks down Apple supply chain headwinds and highlights areas where the tech giant can see future growth. 

Opening Bell

Apple Reports Revenue Beat, Warns of Possible $8 Billion Hit From Supply Constraints

here to discuss is Doug astronaut managing partner at Exponential Investment Partners. Thank you so much for being back with us. What were some of the biggest takeaways that you noted from this latest earnings report from Apple. And do you think investors are confident that Apple can, whether these supply chain challenges that they're noting Great to be here. I think it was really an incredible quarter for apple, really across the board. Very impressive. Not a lot to worry about their, I mean they grew their top line at 9%, which is just incredible for a company of this size that's Got a market cap of $2.5 trillion. And particularly notable were the services that grew 17 And then also the Mac, which group, I think it was around 15%,, which was kind of a surprisingly high growth rate for the Mac. So it was really just an incredible quarter which we've come to sort of expect from Apple. The one minor negative piece of news was where the supply chain issues that they're a little bit worried about could affect 4-8 billion in revenue. That's kind of a big range, but that's, that's a little worrisome, but that would be a temporary issue that wouldn't affect the long term value of the company. And you know, this continues to be probably the greatest technology company in the world and they've got 35% operating margin. They've leveled up their balance sheet very impressively. So they're actually generating well over 100% return on equity because of that leverage, which is pretty amazing. So we think they delivered on kind of on all cylinders here and this is a great quarter. I do want to talk with you about services in just a moment, but before that Apple shipped 57 million iPhones worldwide, bringing in over $50.5 billion dollars in sales last quarter. What in particular sticks out to you about these sales numbers, especially given the Ukraine war and how that impacted distribution for the company? Yeah, I mean, that was what was impressive. They really delivered this growth in the sales in spite of the challenging backdrop with supply chain issues and some of the challenges in different countries like china and of course Russia and the Ukraine. And so we really felt like they came through and deliver that growth in what is a challenging environment, which really makes it all the more impressive. And really, those Mac numbers were particularly impressive with their new chip technology and some of the new features they added there, that really bumped up what was sort of an older product line that that maybe wasn't as big of a growth driver, but that really came through in this quarter. And that services number, that's key to, you know, smoothing out the volatility of their earnings and growth because those, those numbers don't rely on new products per se, those are, that's just recurring revenue that really can help them deliver a more consistent performance going forward. Yeah, let's focus on that services. Number uh, the entire services suite was up over 17.2%. Year over year, it was the highest yearly rise among all of Apple's product categories. Are you anticipating? This is the biggest area where we're going to see growth for the company. Yeah, that has been kind of the growth area um lately and going forward, I think they've got a lot more room there and they can just keep building their platform of services and that gives them a great moat economic moat. To kind of have these loyal devoted customers who will continue upgrading their devices and, you know, take advantage of that walled garden where Apple's really got this incredible ecosystem where they built this loyalty and consumer satisfaction from a huge audience that will continue to upgrade and use their products. We think that that's really driving the entire company, Is that ecosystem and the services is a very important element to continuing to drive the hardware sales as well. Yeah. Doug, I also want to ask you really quickly also about streaming for Apple tv plus, because we're constantly talking about the streaming wars, what is your perspective on Apple's content library at this point? Are they able to compete and be one of those bigger streamers that people consider adding to their providers at this point? Well, we view Apple's tv offering, it's really just kind of an add on that they typically will bundle into their suite of services. They're not really gunning for netflix or trying to, you know, displaced Disney in the lineup of somebody's streaming services. We view it more along the lines of what amazon is doing, where it's part of a bundle. Um, I would imagine the majority of the subscribers to apple tv or getting it through some kind of a bundle with the cloud storage and the fitness and the apple music. I mean they've got some great bundle offerings where you can get pretty much all those core services for a very reasonable price. So we put them more in the amazon prime box where you're really going to get it as part of a bundle with your underlying core services, not really going to be competing with HBO max and netflix and Disney plus, we view them as a little different. It's more of an add on and a way to keep the subscribers more sticky for their suite of services. Yeah. And where do you see the biggest growth in the hardware space? We could talk about wearables for about another half hour, but just about a minute left here. Yeah, well, we were really impressed with that Mac growth number. That was impressive. And you know, the wearables are still kind of a smaller segment of their business, but definitely one that we think in the future is going to be big. The whole fitness and wearables area is really something that's just starting to kind of catch fire. But that that MAC number was impressive. The services were of course, impressive. And you know, again, just a company this size, delivering 8-10% top line growth consistently, year in year out is is really extraordinary. And they've just time and time again proven themselves to be the best in breed technology company in the world. Doug astronaut, managing partner at Exponential Investment Partners. Thank you so much for joining us for that perspective on Apple.