Latest / Bloomberg Intelligence / Earnings Analysis: Apple Tops Sales Estimates But Falls Short of Blowout Quarter

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Earnings Analysis: Apple Tops Sales Estimates But Falls Short of Blowout Quarter · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
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  Speaker 2: This is a breaking news update from Bloomberg.
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  Speaker 1: Instant reaction and analysis from our three thousand journalists and
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  Speaker 1: analysts around the world.
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  Speaker 3: Apple's overall second quarter revenue beat analyst estimates, as did
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  Speaker 3: earnings per share, in particular China sales topping expectations. iPhone
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  Speaker 3: revenue match the average analyst estimates, and this was a
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  Speaker 3: big headline. The company authorized up to one hundred billion
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  Speaker 3: dollar share buyback and boosted its dividend to twenty seven
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  Speaker 3: cents of shared Doing those big buybacks is not unusual
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  Speaker 3: from these companies. Right now, talking to our honor our
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  Speaker 3: grown up Bloomberg Intelligence senior technology analyst out there in
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  Speaker 3: Chicago and out there in San Francisco is at Ludlow
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  Speaker 3: co host b Tech. We continue to track the stock
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  Speaker 3: reaction team here.
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  Speaker 1: Yeah, I just going through Apple's press release, going see
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  Speaker 1: and if there's anything that we missed extraordinary iPhone mayor yeah,
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  Speaker 1: exactly does that?
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  Speaker 3: Yes?
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  Speaker 1: So I feel like we're talking about the Federal Reserve
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  Speaker 1: and the FEDS language here quote extreme. Yeah, what is that?
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  Speaker 4: Exactly? So that's exactly the thought that went through my head.
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  Speaker 4: How much does language in a statement matter, and so
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  Speaker 4: I'm actually going to throw that question to Anaag. But
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  Speaker 4: basically that is the language extraordinary demand. But they also
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  Speaker 4: basically specifically calling out the seventeen e. Is that enough,
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  Speaker 4: Ana Rag, to infer an upgrade cycle? Just that that
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  Speaker 4: one sentence in a statement.
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  Speaker 5: See, if you go back and look at the previous quarter,
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  Speaker 5: we saw Apple iPhone's doing really well.
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  Speaker 2: This quarter has done well.
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  Speaker 5: We think the consensus of you know, roughly around eight
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  Speaker 5: percent increase in iPhone may not be enough. I mean,
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  Speaker 5: they may have to raise those numbers, but we'll only
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  Speaker 5: find out about on the conference call because they don't
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  Speaker 5: give guidance on the their or you know, in the release.
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  Speaker 5: So you know, I'm expecting now based on what I
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  Speaker 5: read that there is a high likelihood that they will
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  Speaker 5: talk about another strong iPhone quarter.
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  Speaker 2: You know, that's the upcoming quarter, Honourag.
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  Speaker 3: You said too in our preview before these numbers, you said,
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  Speaker 3: Apple is the only one who has not taken up
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  Speaker 3: prices because of memory shortages, and it you know, has
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  Speaker 3: given them an opportunity to gain share. Should they continue
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  Speaker 3: to do that in your view, not raise prices and
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  Speaker 3: go after share? I mean it is China indicative of
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  Speaker 3: that or is that something else.
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  Speaker 5: One, especially if the gross margins were forty nine, which
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  Speaker 5: is two hundred basis points.
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  Speaker 2: Above last year.
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  Speaker 5: Absolutely, because it looks like they're doing better deals with
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  Speaker 5: their memory.
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  Speaker 2: Providers than the rest of them.
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  Speaker 5: Now I could be completely wrong and on the conference
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  Speaker 5: call they say, well, memory prices is hurting us, and
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  Speaker 5: we may take some prices, but as often now, what
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  Speaker 5: I see is them gaining market share.
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  Speaker 3: Ed same thing, you know, your thoughts in terms of
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  Speaker 3: what honourug said in terms of pricing versus market share,
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  Speaker 3: This is you know, the potential for a little bit
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  Speaker 3: of a grab here for Apple in someone.
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  Speaker 4: Yeah. I mean you know, historically, Apple, which you know
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  Speaker 4: has a relatively recent CFO in the seat, has been
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  Speaker 4: the mas stir of the bottom line, right, And so
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  Speaker 4: when it comes to memory, we have fixated on margins.
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  Speaker 4: Apple's price strategy has been less controversial, shall we say
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  Speaker 4: generations generation They would argue they keep the iPhone entry
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  Speaker 4: level price static or even if it goes higher, they
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  Speaker 4: give you more memory for storage for that number. So
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  Speaker 4: the way that I look at it is like, is
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  Speaker 4: there any evidence that they share with the investor base
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  Speaker 4: about consumer behavior. In other words, like right now, is
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  Speaker 4: there a macro concern about the health of consumers in
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  Speaker 4: different markets? If you read down the release, they talk
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  Speaker 4: about strength in all geographic segments. But actually if they
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  Speaker 4: gave a bit more granularity of like Okay, well China's good,
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  Speaker 4: how's things going in Europe, North America, latam Southeast Asia?
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  Speaker 4: That to me is kind of interesting.
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  Speaker 1: Is that where the neo comes in, and that's sort
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  Speaker 1: of like a gateway drug to get more people into
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  Speaker 1: the iOS ecosystem.
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  Speaker 4: The MacBook Neo though, like remember different to the iPhone.
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  Speaker 4: It's it's an entrance into a market where Apple's not
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  Speaker 4: really played.
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  Speaker 1: Like a chromebook category.
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  Speaker 4: Yeah, exactly, lower price point, go after students, people in
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  Speaker 4: higher education, I.
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  Speaker 1: Would imagine, though. I would imagine those people though ed
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  Speaker 1: would like experience using the interface of a Mac and
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  Speaker 1: then say, wait a second, I don't have an iPhone
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  Speaker 1: right now, but I want to be able to use
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  Speaker 1: I message as well as I could on this Mac.
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  Speaker 1: Would I buy an iPhone? I don't know. I'm just
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  Speaker 1: especially in other parts of the world, I don't know.
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  Speaker 4: I don't have anything intelligence to say about that other
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  Speaker 4: than you know, what's interesting about the Neo is the
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  Speaker 4: processor is basically the same as the latest iPhone, you know,
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  Speaker 4: and that is one way that they were able to
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  Speaker 4: get it at that price point. I don't I don't
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  Speaker 4: know how ANAAG sees the Neo as like a sort
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  Speaker 4: of category defining piece of technology. But again, like while
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  Speaker 4: you guys chat, I'll go back and look at the
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  Speaker 4: Mac numbers overall and see what we learned about everything
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  Speaker 4: outside of the I phone just from the statement alone.
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  Speaker 5: So I mean when I look at the lower end back,
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  Speaker 5: I frankly, I mean, whether you're a student or you
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  Speaker 5: are an emerging market, this is a very good place
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  Speaker 5: for you to get in. Max are much more stable
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  Speaker 5: than Windows devices. You know, I've had only two Macs
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  Speaker 5: in the last eighteen years. I mean, it's just unbelievably stable.
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  Speaker 5: I mean it's you know, it's a completely different ecosystem.
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  Speaker 5: But what you what you actually do is you get
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  Speaker 5: more people to buy your services. And remember that's in
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  Speaker 5: my high margin business. That's seventy five percent gross margins,
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  Speaker 5: whether it's the app store or you know, Apple Care,
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  Speaker 5: whatever it is. So I think the going down the
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  Speaker 5: curve and having an entry level product is extremely important,
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  Speaker 5: especially because the growth is only going to come from
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  Speaker 5: emerging markets. It's not going to come from Europe, Western Europe,
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  Speaker 5: and it's not going to come from the US.
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  Speaker 2: So I think it's a very good strategy.
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  Speaker 3: I want to just I'm looking at our live blog
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  Speaker 3: guys and Mark German weighing, and we're going to hear
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  Speaker 3: from Mark shortly too. He's going to join this conversation,
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  Speaker 3: but he points out, I mean, the stack's going back
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  Speaker 3: and forth between green and red. He says the main
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  Speaker 3: reasons are likely that although the iPhone sold extremely well,
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  Speaker 3: it didn't blow out Wall Street expectations. Instead it met them.
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  Speaker 3: And he says the other factor is the week of
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  Speaker 3: then anticipated revenue coming from the America's region forty five
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  Speaker 3: point one billion versus forecast of forty five point eight billion.
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  Speaker 3: It's just interesting and to watch this share price in
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  Speaker 3: the aftermarket, it's investors kind of going back and forth.
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  Speaker 3: I thought it was going to be like, maybe settle
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  Speaker 3: in and say it seems like, you know, investors like it,
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  Speaker 3: it's solid. They're okay, let's move forward.
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  Speaker 4: But well, let's remember that we started this show and
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  Speaker 4: segment with Bloomberg's Mark German, who leads our coverage of
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  Speaker 4: consumer technology and is generally regarded as the leading journalist
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  Speaker 4: covering Apple on Planet Earth, saying this was not going
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  Speaker 4: to be about the transition of CEO, and it was
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  Speaker 4: not going to be about learning about John Turnis as
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  Speaker 4: a CEO, what his strategy is. I don't know, guys.
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  Speaker 4: To me, this seems like trent.
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  Speaker 5: Apple is trading at thirty times earnings. Microsoft is at
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  Speaker 5: twenty two. Google's at twenty nine, even after blowout results.
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  Speaker 5: So even after all of this, Apple is still more
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  Speaker 5: expensive than them.
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  Speaker 3: What yeah, and does it warrant it based on this
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  Speaker 3: result on a rug or what?
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  Speaker 5: So? I think it's a lot of has to do
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  Speaker 5: with the business model of the company. This is something
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  Speaker 5: we go back to. This is a far more stable
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  Speaker 5: business model with imagine three percent of revenues going into
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  Speaker 5: Capex compared to forty forty five for Microsoft.
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  Speaker 2: They are not raising Capex.
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  Speaker 5: They have an absolutely stellar ecosystem of products, and guess
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  Speaker 5: what was whoever has the best model, They're going to
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  Speaker 5: pay them a little bit of money to get them
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  Speaker 5: on their on their platform. So it's a completely different
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  Speaker 5: business model than the other Max seven.
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  Speaker 2: And people like stability. People like the pre cast flow
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  Speaker 2: nature of it.
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  Speaker 5: They're going to spend They're going to generate over one
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  Speaker 5: hundred million dollars in pre cat flow, and they're going
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  Speaker 5: to buy back their stock with it. They're not going
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  Speaker 5: to build data centers with it.
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  Speaker 4: Can I read you something on a rag and then
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  Speaker 4: you can respond to it? Okay, I'm paraphrasing. Other companies
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  Speaker 4: have a clearer AI story and very different businesses to Apple.
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  Speaker 4: Apple's bottom of the year was March thirty. Apple trades
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  Speaker 4: at a premium despite slower growth than its peers, and
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  Speaker 4: the stock trading flat year to date reflects anxiety on
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  Speaker 4: component costs and memory. Do you know who wrote that?
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  Speaker 2: It was me?
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  Speaker 4: Four twenty six pm Eastern Time.
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  Speaker 2: What do you make? What do you make of that?
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  Speaker 2: Sounds like you're absolutely right? Yeah, absolutely right.
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  Speaker 5: But you know, all I'm saying is, you know, when
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  Speaker 5: you look at a company like an Apple or in
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  Speaker 5: a costco, it really is a different business model compared
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  Speaker 5: to all the others. And I think most people forget
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  Speaker 5: that this is something that's going to be around for
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  Speaker 5: a very long time, spits out of a lot of cash,
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  Speaker 5: even if in a quarter they don't grow, does not matter.
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  Speaker 5: The free cash flow still comes in and they keep
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  Speaker 5: on buying back more shares.
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  Speaker 3: Yeah, right, so they you know, investors are happy. Investors
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  Speaker 3: are happy, you know, so top of mind you guys
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  Speaker 3: when we get to that call with Analyson investors, Anna
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  Speaker 3: rog is it memory prices?
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  Speaker 1: Is it?
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  Speaker 4: What else.
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  Speaker 2: Memory prices?
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  Speaker 5: What's the iPhone story look like in the next quarter,
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  Speaker 5: and what kind of new products can we see during
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  Speaker 5: the September.
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  Speaker 2: There will be questions on city.
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  Speaker 5: But I think they will punt it and say, well,
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  Speaker 5: log in in June eighth and see it.
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  Speaker 2: But to be very honest, thanks to.
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  Speaker 5: Mark Gullman, we already know what's going to happen on
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  Speaker 5: June eighth.
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  Speaker 1: Yeah, I know you got to read read Mark to
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  Speaker 1: understand everything and not be surprised.
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  Speaker 3: Well, I'm Serria to understand me and answer me back
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  Speaker 3: suple questions like you know, a silly little address, like
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  Speaker 3: it seems so far behind ed is it a serie?
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  Speaker 3: I mean, it's funny. Mark has also shared with us,
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  Speaker 3: you know, a lot of the products that the new CEO.
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  Speaker 3: I think he did a story about a pipeline of
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  Speaker 3: ten major products, whether it's a smart home hub, tabletop,
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  Speaker 3: robot security device, smart glasses, AI air pods, appendant. I mean,
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  Speaker 3: there's a lot of stuff. Are we going to get
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  Speaker 3: some some more details here?
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  Speaker 4: Well, so, like that is just not how how the
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  Speaker 4: earning school works, right, Yes, you get granularity and detail.
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  Speaker 4: Tim Cook, you know, I think he's the kind of
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  Speaker 4: CEO that goes, well, I'm not an economist, but and
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  Speaker 4: we'll sort of go into the state of the world.
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  Speaker 4: And Kevanporrekt, the CFO, is very good at explaining all
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  Speaker 4: of the plus and minus factors of the quarter. But
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  Speaker 4: those shiny things, you know, Apple Intelligence, improvement on Siri,
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  Speaker 4: handset innovation, foldable, you know. June is WWDC, the Annual
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  Speaker 4: Developers Conference September takes us into the new hardware season.
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  Speaker 4: Tonight's not it, you know, And so you just need
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  Speaker 4: to find out this sort of plain balance sheet driven factors,
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  Speaker 4: which sounds boring for the audience maybe, but that's so
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  Speaker 4: key when you cover a company of Apples scale.
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  Speaker 3: Well I get that because you're looking at the stock
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  Speaker 3: now down about one percent, So investors are obviously looking
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  Speaker 3: for a little bit more detail or a lot more
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  Speaker 3: detail when it comes to what's on the balance sheet
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  Speaker 3: and Ludlow, we know you need to go at this moment.
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  Speaker 3: Thank you so much. Co host a B Tech on
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  Speaker 3: Bloomberg Television at eleven am Monday through Friday on Bloomberg Television,
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  Speaker 3: Ana Rug is going to stick around, which we are
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  Speaker 3: grateful for.
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  Speaker 1: We were just having a discussion about margins on ROG
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  Speaker 1: and I know that's front and center for you. I
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  Speaker 1: asked you that was the most important number to see.
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  Speaker 1: Have you had a chance to do the back in
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  Speaker 1: the envelope there and get the results?
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  Speaker 5: Yeah, the gross margins are up about two hundred and
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  Speaker 5: twenty basis points, So that's a very good number. Now,
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  Speaker 5: that could just be a MiG shift towards services, But
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  Speaker 5: I think the number one call, the question or the
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  Speaker 5: call has to be what's what our memory price is
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  Speaker 5: doing to all their products and up till how long
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  Speaker 5: can we anticipate these margins actually holding up? Because when
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  Speaker 5: I looked at Consensus, even before the call for the
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  Speaker 5: next two quarters, Consensus are not anticipating any degradation in margins,
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  Speaker 5: which was a bit surprising to me because we all
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  Speaker 5: know memory process are through the roof right now.
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  Speaker 1: So help us out here. Is this I just want
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  Speaker 1: to make sure we're looking at the right place in terms,
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  Speaker 1: because it's not broken out in the release, but we're gross.
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  Speaker 1: We're gross margins forty seven point nine percent.
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  Speaker 2: Forty nine point two compared to forty seven losses.
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  Speaker 1: Okay, compared to forty seven last quarter.
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  Speaker 2: Okay, thank you, yeah, last year, same quarter. Okay.
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  Speaker 1: Obviously I'm not looking at the right place.
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  Speaker 3: Okay, we'll look at on the FA function on the Bloomberg.
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  Speaker 1: On a rog with us, Well, it's.
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  Speaker 3: Always kind of massive numbers, I feel like with Apple overall,
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  Speaker 3: which is kind of interesting. I want to go back
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  Speaker 3: to the China revenue story that twenty point five billion,
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  Speaker 3: because it's been an area where they've struggled a little bit.
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  Speaker 3: Does this indicate a better trend line on a rug
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  Speaker 3: in your view going forward? Or we'll have to weigh
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  Speaker 3: and see.
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  Speaker 5: So two things happen. One is easier comparison. When you
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  Speaker 5: really had a bad year, you know you're going to
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  Speaker 5: go into the next year with the baseline that's low.
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  Speaker 5: So that's one second. You are also looking at promotions
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  Speaker 5: in that geography. Sometimes it's not like all the time,
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  Speaker 5: but you know, but when your competitor is raising prices.
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  Speaker 5: You take your base model and you push it as
• 13:22
  Speaker 5: hard as you can and you actually get you know,
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  Speaker 5: I would be very surprised if they don't say that
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  Speaker 5: China iPhone revenue, which they don't give frankly, wasn't up
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  Speaker 5: more than twenty twenty five percent.
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  Speaker 2: Like, I would be very surprised if that's not the number.
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  Speaker 6: Why, because you know, one of the things, as I said,
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  Speaker 6: the base was so small they I mean, in a
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  Speaker 6: sense the comparison was easier, and they have been extremely
• 13:47
  Speaker 6: aggressive in terms of marketing that product, while the others
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  Speaker 6: have not been.
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  Speaker 1: Okay, okay, listen, you know, can you talk to us
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  Speaker 1: a little bit about remind us just guidance wise what
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  Speaker 1: Apple tells us on the call.
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  Speaker 5: So they would typically talk about a handful of things.
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  Speaker 5: One they would give overall guidance in terms of total
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  Speaker 5: revenue growth. Sometimes they would give eephone guidance. Sometimes they won't.
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  Speaker 5: Last time, they did give some indication of where it
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  Speaker 5: could be. They talk about gross margins in total. They
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  Speaker 5: don't really go down on a segment level. And again
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  Speaker 5: I think the number that usually is consistent is total
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  Speaker 5: revenue line. But the others, you know, things do bounce around,
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  Speaker 5: But I think the soft commentary around pricing of memory,
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  Speaker 5: I think is going to be one of the most
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  Speaker 5: important factors.
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  Speaker 3: How much leverage though, Anna rog I think we've talked
• 14:36
  Speaker 3: about this with you. You know, they have this incredible
• 14:40
  Speaker 3: supply chain. They're massive, They're a big customer, and when
• 14:44
  Speaker 3: it comes to the supply chain, those who are supplying
• 14:46
  Speaker 3: the components, they listen to the biggest and the loudest.
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  Speaker 2: You know.
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  Speaker 5: I have been surprised because yes, they are the biggest
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  Speaker 5: and they're but you know, when something goes up fifty
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  Speaker 5: sev hundred percent, you know, you you understand, and even
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  Speaker 5: the person who's selling it cannot do anything about it,
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  Speaker 5: so you have to eat up some other costs. So
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  Speaker 5: I think, you know, that is probably why I was saying,
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  Speaker 5: I was a bit surprised. When I looked at margins
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  Speaker 5: for the next quarter. They still look healthy in a sense,
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  Speaker 5: I'm not seeing any degradation there.
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  Speaker 2: That's an area where we think there could have been hit.
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  Speaker 5: We had calculated it a while ago that you know,
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  Speaker 5: that number could be anywhere between two to three percent
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  Speaker 5: or somewhere.
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  Speaker 2: You know, in that range. But again, we're not seeing
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  Speaker 2: any of that at this point,