Electronics Factory in Shenzhen
Source: Steve Jurvetson, Wikimedia Commons

Protocol Index: Tim Cook says China is ‘resilient’

Protocol Index

Good morning! This Friday, Apple and Amazon's earnings offer insight into the ad market and China's recovery, book digitization might speed up, and Quibi's still got problems. Want Index in your inbox each morning? Subscribe here.

What Matters Today

  • 7 a.m. PDT: ISM manufacturing data is released, following Markit's release at 6:45 a.m. The data is expected to show a further contraction in manufacturing activity, and ISM's sectoral breakdowns should give a sense of how tech makers fared amid that environment.

Layoff Watch

Today's News

As of 4:10 a.m. PDT: Nasdaq Futures: -2.50% | Euro 600: Closed | Nikkei: -2.84% | Hang Seng: 0.28%




Diving Deeper

The devil's in the details

You've probably seen the headline figures from yesterday's big earnings reports: Both Amazon and Apple beat revenue expectations, with Apple also beating on profit. But buried within the releases are some interesting nuggets that tell us a little more about how tech's doing.

  • Subscriptions remain strong. Apple's services business was up almost $2 billion from a year earlier, and the company said it expects Apple Music and TV+ demand to hold up this quarter. Similarly, Amazon's subscription revenue was up 28%, presumably thanks to a surge in Prime demand.
  • That strength is particularly good news for Apple because it proves it's no longer reliant on a single product: iPhone sales made up only 49% of Apple's revenue last quarter.
  • "It's very clear they've got a business now that, although it's built on the iPhone, it's got the resilience to take bumps in the road due to the services revenue," CCS Insight's Geoff Blaber said.

We also got a look at China's recovery, which seems to be going remarkably well.

  • Apple's China sales were down less than $1 billion from last year, with CEO Tim Cook telling investors that things have improved in March and April. Sales are "headed in the right direction," he said.
  • That bodes well for the West. Cook said Apple plans to start reopening some U.S. stores in the next two weeks, which could lead to a quick rebound in sales.
  • Chinese factories seem to be holding up, too. Cook said the supply chain was "back up and running at full-throttle at the end of March," though he refrained from saying whether this fall's iPhone production will be delayed.
  • Cook said the rebound was evidence that Apple doesn't need to diversify away from China. "If you look at the shock to the supply chain that took place this quarter — for it to come back up so quickly really demonstrates that it's durable and resilient," he said.

For Amazon, meanwhile, ad revenue is on the up.

  • Its "other" revenue, which is primarily composed of its ad business, was up 44% year-on-year, bringing in almost $4 billion last quarter.
  • CFO Brian Olsavsky said there was "some pullback from advertisers" in March, but it wasn't "as noticeable as maybe some others are seeing." That would make sense: Few ads are more directly linked to product sales than those on Amazon, so advertisers may keep spending on Amazon even as they halt marketing elsewhere.

The biggest takeaway is that everyone is scared to predict the future.

  • Tim Cook offered some indication of what Apple's seeing at the moment, saying the second half of April was better than late March and early April.
  • But Apple refused to give formal guidance for the current quarter, saying there's just too much uncertainty.
  • That's worrying. "It just spooks people about just how bad the second quarter is going to be," Cannaccord Genuity's Mike Walkley said. And if Apple, which has one of the best views of the global economic situation of anyone, can't predict the future, what hope is there for the rest of us?


  • "Advertiser budgets are retreating from any kind of long-term investment in their brands. The only campaigns that are surviving are those that contribute to cash flow today. That is where Google and Facebook are best in class." — Enders' analyst Joseph Evans told the Financial Times that the current crisis is "locking in" big tech's ad advantage.
  • "In the next three to six months we might get to where we might have got in a few years." — Stephen Page, CEO of publisher Faber and Faber, thinks digitization could accelerate in the book industry.
  • "We'll continue to maintain hiring momentum and up-level our talent, just like we did in 2009." — Atlassian's CEOs said they were focused on "playing offense in stormy weather."
  • "Elon Musk is a national treasure." — Marc Andreessen's spokesperson didn't further clarify whether the investor agreed with Musk's comments on the lockdown being "fascist."

Closing Bell

Launching Quibi in a pandemic might not have been a good idea

The Wall Street Journal had a great piece yesterday on the many troubles at Quibi. It's got a bunch of juicy details: Jeffrey Katzenberg thinks they underestimated the challenge of launching Quibi in a global pandemic; it's got 3 million downloads but around 1 million registered users; and it was planning on losing $550 million this year even before COVID hit. By the end of the year, it now expects to have spent $1 billion of the $1.75 billion it raised from investors, but the company's now aiming for profitability. I will be astonished if it pulls that off.

Thoughts/feedback/tips? Email me — shakeel@protocol.com — or anonymously contact Protocol. And subscribe to get Index in your inbox each morning. Have a lovely weekend, and see you next week.

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