What's going on?

Apple � the world�s second-largest public company � reported better-than-expected quarterly results late on Tuesday. Investors duly Applauded, helping its stock initially rise 2%.

What does this mean?

Sales of iPhones � including the first full quarter of the company’s latest flagship product � impressed, as did those of wearables such as the now-ubiquitous AirPods. But revenue from Apple�s services segment, where Apple TV+ didn�t do much to hamper rival Netflix�s quarter, surprisingly missed expectations. That bodes ill for the company�s plans to shift its focus away from hardware and towards recurring subscription sales (tweet this).


The big Apple�s earnings forecast for this quarter, meanwhile, was higher than investors had thought. Still, with China representing almost 20% of Apple�s overall business and a proliferating coronavirus there disrupting consumer spending, there�s perhaps a bigger risk than usual that the company falls short.

Why should I care?

For markets: At the margin.

Apple scored just 15% of global smartphone shipments last year � but 66% of the total profit they generated. Put simply, iPhone revenue � which has already exceeded $1 trillion � has been the apple of Apple�s earnings� eye ever since the device�s 2007 launch. That may explain why investors are so keen on signs of success in the company�s transition to extremely profitable services sales from those of merely highly profitable phones and computers. For now, however, those signs remain elusive � and the costs involved continue to upset the apple cart: Apple�s profit margin has fallen for the last two years, and analysts reckon it�ll fall further this year too.


Zooming out: All the tea in China.

Apple�s not the only US company (or investor) counting on growth in China: famous �activist investor� Bill Ackman has bet a billion dollars on Starbucks winning big there. But despite also announcing better-than-expected quarterly earnings late on Tuesday, the coffee company�s stock price initially fell. What with the coronavirus closing cafes, Starbucks� earnings this quarter, like Apple�s, probably won�t be as grande�as previously predicted.