Bulk ⇥ leancrew.com

This is a short story of when loose language runs rampant and we start, as usual, with an analyst’s report, as cited by Todd Haselton of CNBC:

Google is paying Apple billions of dollars to remain the default search engine on iPhones and iPads, Bernstein said in a note to investors on Monday.

The firm believes that Google will pay Apple about $3 billion this year, up from $1 billion just three years ago, and that Google’s licensing fees make up a large bulk of Apple’s services business.

Setting aside the accuracy of this estimate, the phrase “a large bulk” became even more substantial when Abner Li of 9to5Mac linked to the report (emphasis mine):

A new report from Bernstein today estimates that the deal is worth $3 billion in 2017. This agreement is equally lucrative for Apple and makes up the bulk of their growing services division, according to the analysis. Additionally, the payment is described as “nearly all profit for Apple,” with Google possibly accounting for 5% of Apple’s total operating profit this year.

This disparity was noticed by Dr. Drang:

The article is entitled “Google pays $3 billion for default search on iOS, estimated to be bulk of Apple services business,” which is not so much a title as a topic sentence. Given that Apple released its latest quarterly financial report just a couple of weeks ago, the combination of “$3 billion” and “bulk of Apple services business” should have raised a red flag. Apple reported over $7 billion in services revenue in the last quarter alone. There’s simply no way $3 billion from Google (regardless of whether that speculative figure is right or wrong) could make up the bulk of Apple’s yearly services revenue.

There’s something else, too, that I think bears questioning in the report:

“Court documents indicate that Google paid Apple $1B in 2014, and we estimate that total Google payments to Apple in FY 17 may approach $3B,” Bernstein analyst A.M. Sacconaghi Jr. said. “Given that Google payments are nearly all profit for Apple, Google alone may account for 5% of Apple’s total operating profits this year, and may account for 25% of total company OP growth over the last two years.”

Except what isn’t reflected in the CNBC article or its published excerpts from Sacconaghi Jr.’s investor note is that Apple’s fiscal year 2016 profits didn’t grow year-over-year — they shrank, to the tune of $7.7 billion compared to 2015. Fiscal year 2017 isn’t complete yet, but Apple has reported $37.64 billion in profit so far, compared to $36.7 billion for the first three quarters of 2016.

I’m not going to do the math on this, but the omission of any indication in the report that Apple’s 2016 was a shrinking year severely impacts the interpretation of the data.