Apple Earnings Call: What We Didn’t Hear

Apple (NASDAQ:AAPL) delivered another blowout quarter (yawn), once again topping analyst expectations on soaring iPhone sales and profits, 71% year-over-year revenue growth in China, and all-time record App store and total services revenue.

As Tim Cook said on the tech giant’s earnings call, “It’s tough to find something in the numbers not to like.” And he’s right. So what’s not to like?

If you think back to the Code Conference around this time last year, SVP Eddie Cue made headlines, saying, “We’ve got the best product pipeline that I’ve seen in my 25 years at Apple.” Cook has since echoed that same optimism over new products.

The thing is, we didn’t hear that same kind of optimism on the call.

Don’t get me wrong; it’s been one-heck-of-a-year since Cue’s remarks. Apple delivered the mother of all product refresh cycles with iPhone 6 and updates to the best notebooks and tablets on the market. It launched Apple Watch and Apple Pay and added HomeKit, HealthKit and ResearchKit to the company’s impressive ecosystem.

That said, Cook’s tone on the call sounded decidedly muted in contrast to both his and Cue’s previously optimistic attitude. First and foremost, let’s talk about the watch.

Considering this is the first new product category in five years and the first during Cook’s tenure as CEO, I guess I expected more than Cook saying the customer response “has been overwhelmingly positive and we’re far ahead of where we expected to be from an application point of view.”

One analyst noted the lack of superlative descriptors that usually accompany new product launches, to which Cook replied, “I’m thrilled,” he said, “I don’t know how to say it any clearer than that.” But Cook also said that, “with demand outstripping supply, it’s hard to gage demand with no product in the stores.”

While that may be true, it sort of landed with a thud, at least to my ears.

That alone doesn’t change my view on Apple Watch. I do believe it’s far and away the best smartwatch on the market. I do believe it’s going to be a game-changer. And I do believe it’s going to dominate the wearable category. But now I’m starting to sound a lot more like I expected Cook to sound.

To me, Cook actually sounded more optimistic about iPad, saying customer usage and satisfaction were essentially off the charts and the data did not indicate market saturation. He chalked up continued sales declines to the known inventory correction problem and cannibalization by the larger iPhone and thinner MacBooks. And he said the enterprise partnership with IBM is still in its early stages.

Last but not least is the elephant in the living room, Apple TV. Again, Cook answered an analyst question with positive words, saying they’re seeing a lot of traction with the HBO Now launch and that customers want great TV content with the user interface and ease of use they’re accustomed to.

Then he went on to say, “I don’t want to speculate but you can speculate probably as good as I can about where that can go. I think we’re in the early stages of just major, major changes in media that are going to be really great for consumers and I think Apple can be a part of that.”

Need I remind you that, once upon a time, Apple reportedly had big plans for a fully integrated TV or set-top product? Unfortunately, cable companies proved unwilling to give up control over the interface and the brand, not to mention precious profit margins. Certainly understandable from their perspective.

That left Apple with plan B: negotiate deals, one channel at a time. That’s got to be an arduous and painstaking process, not to mention an impossible task in some cases given that NBC’s parent is Comcast, which is rumored to be working on its own integrated Internet-TV set-top-box.

So Apple’s left with a far less elegant solution to a complex problem than it would like. More importantly, its chances of changing the entire landscape of the living room and dominating the market the way its done with other products is significantly diminished.

Overall, I don’t fault Cook’s somewhat muted optimism with respect to Apple’s new product pipeline. Frankly, I prefer it when executives under-promise and over-deliver. Or maybe he’s just being more secretive, as the company was under Steve Jobs. As always, time will tell.