In every Apple earnings conference call with analysts, there are a range of questions from good to bad. Sometimes worse. And sometimes most of them are just bad. But in Tuesday's call for Apple's second fiscal quarter of 2016, two analysts stood out for me as those who asked both the best and and worst questions.
Simona Jankowski of Goldman Sachs—a newer player in the world of $AAPL analyst coverage—was chosen first during the Q&A session of the call, and I thought her questions were excellent.
Bernstein analyst Toni Socconaghi continued his streak of really bad questions, and I'm dubbing his questions this time around as the worst from the call.
In the passages below, I have the full quote from the respective analysts, followed by my thoughts. I'll then include the full response from Apple CEO Tim Cook and/or Apple CFO Luca Maestri so you can see how they handled those questions.
The Best Question from Apple's Q2 2016 Conference Call
Simona Jankowski of Goldman Sachs
Source: Goldman Sachs
Simona Jankowski: My first question was just a clarification in terms of putting in context of that 2 billion in channel inventory reduction. What was that last year, just to help us make the comparison on a year-over-year basis?
And then the bigger question, Tim, was: with the smartphone market now reaching a pretty mature growth phase, how does Apple think of itself going forward? Is it as a growth company or a more mature tech company? And if it's still the former, how does that change how you think about M&A [mergers and acquisitions], especially given the position you're in with your balance sheet, strategically?
A lot of times analysts asks for clarification on minutia, or things that don't appear to me to be very important. In general these folks are exceedingly intelligence and always have a reason for asking their questions, but in this case Ms. Jankowski's clarification was very relevant to anyone trying to understand exactly how Apple's channel inventory management affected the first year-over-year decline in revenue in 13 years.
Her bigger question was what was really interesting to me. While Apple is often asked about M&A, it's so often done in terms of, "Hey Tim, when are you going to buy some more revenue?" Those questions are typically founded in looking at Apple like it's any other company. Apple's strategy for acquisitions has instead been about acquiring technology and people to make Apple's existing and future products better, not to buy revenue.
Ms. Jankowski's question was analyst-speak for "Has seeing a decline in revenue made you rethink that big pile of money you have? If so, how?" That's a great question, in my mind, regardless of Mr. Cook's answer.
In this case, though, we got some insight from Mr. Cook. As shown below, he indicated that Apple would make a bigger acquisition than it's made in the past. What that might mean remains to be seen, but it's an important question and answer.
What follows is Luca Maestri's clarification and Tim Cook's answer, both in full:
Luca Maestri: Mona, let me give you data points on the sell-through and then I'll let Tim answer the strategic question. We had a channel inventory reduction that was worth a bit less than $800 million a year ago.
Tim Cook: Simona, Hi. It's Tim. In terms of do I think the smartphone market is mature. I think the market, as you know, is currently not growing. However, my view of that is that's an overhang of macro-economic environment in many different places in the world. And we're very optimistic that this, too, shall pass, and that the market—particularly us—will grow again.
The reason we're optimistic is we look at the three places iPhone sales come from, and from an upgrade point of view, we compare favorably—slightly better—than the upgrade cycle we saw on the iPhone 5S. It's lower than the iPhone 6, but I think all of us know that was an extraordinary cycle that accelerated upgrades from  into 2015. That comparable will be tough for this year, but that's a transitory thing.
As we look at Switchers, we're extremely excited that for the first half we set a record for Switchers from other platforms, the largest we've ever seen in any 6 month period before. So we've got traction there.
And then on emerging markets, if you take a look at India, we grew by 56 percent. And we're placing increasing emphasis in these areas where it's clear there will be a disproportionate growth versus the more developed areas.
The next thing is that with the iPhone SE, we have seen our ability to attract even more customers into the platform with an incredible product that is at a new price point for us with the latest technology. So we're optimistic about attracting even more customers with that.
We also look at our pipeline, and we're very excited about what's in our pipeline. All those things make me optimistic.
Your other question was on M&A, regardless of the first, we're always looking in the market about things that complement things that we do today, become features in something we do, or allow us to accelerate entry into a category that we're excited about.
As I've said before, our test is not on the size—we would definitely buy something larger than we've bought thus far—it's more about the strategic fit and whether it's a great technology and great people. We continue to look and we stay very active in the M&A markets.
Next: The Worst Question Asked During Apple's Q2 2016 Conference Call with Analysts
Page 2 - The Worst Question Asked During Apple's Q2 2016 Conference Call with Analysts
On page one of this piece, I looked at what I thought were the best questions from Apple's Q2 conference call on Tuesday. Next we'll look at the worst question, courtesy of the chap below.
Toni Socconaghi with Sanford C. Bernstein
Source: Unrelated CNBC Video
Toni Socconaghi: My stance is that you've talked about adjusting for changes in channel inventory that you're guiding for relatively normal sequential growth. I think if you do the math it's probably the same or perhaps a touch worse in terms of iPhone unit growth, sequentially, relative to normal seasonality between fiscal Q2 and Q3.
I guess the question is given that you should be entering new markets and you should see pronounced elasticity from the [iPhone] SE device, why wouldn't we be seeing something that was dramatically above normal seasonal [growth] in terms of iPhone revenues and units in this quarter.
Maybe you can push back on me, but I can't help thinking that when Apple introduced the iPad mini, in a similar move to move down-market, there was great growth for one quarter and the iPad never grew again and margins and ASPs went down.
It looks like you're introducing the SE and at least on a sequential basis you're not calling for any uplift—even adjusting for channel inventory—and ASPs I presume will go down and certainly it's impacting gross margins since you're guiding to [lower margins].
Could you respond to A.) why you're not seeing elasticity, and B.) is the analogy with the iPad mini completely misplaced?
To channel an Internet meme: lolwut? If I am parsing this question correctly, Mr. Socconaghi thinks iPhone SE will do to iPhone sales what iPad mini did to iPad sales. Mind you, iPad mini didn't do anything to iPad sales except keep them from sliding more than they would have without iPad mini.
Also, keep in mind that Mr. Socconaghi has traditionally asked questions that can be paraphrased as thus: "Hey Tim, great job on your record quarter. When are you going to start doing things like every other company?" From licensing iOS or OS X to making dirt cheap iPhones to compete on market share, Mr. Socconaghi is one of those analysts who only seems to view Apple today through the lens of the Wintel hegemony of the 1990s.
In any event, setting up a straw man of the iPad mini having killed iPad sales and then comparing iPhone SE to iPad mini is devoid of logic and understanding of who Apple is and what Apple does. Tim Cook's response below seems to proceed accordingly.
Tim Cook: Toni, it's Tim. Let me see if I can address your question. The channel inventory reduction that Luca referred to—the vast, vast majority of that is in iPhone. That would affect the unit compare you're maybe thinking about.
The iPhone SE, we're thrilled with the response we've seen on it. It is clear there is a demand there even much beyond what we thought, and so that is really why we have the constraint we have.
And so do I think it will be like the iPad mini? [laughs derisively] No, I don't think so. I don't see that. One of the challenges with the tablet market is the replacement cycle is materially different than in the smartphone market. As you probably know, we haven't had an issue in customer satisfaction on the iPad—it's incredibly high. And we haven't had an issue with usage of the iPad—the usage is incredibly high.
But the consumer behavior there is you tend to hold on for a very long period of time before you upgrade. We continue to be very optimistic on the iPad business. And as I said in my remarks we believe we're going to have the best compare for iPad revenue this quarter than we've had for quite some time.
We'll report back in July on that, but I think iPhone has a completely different cycle to it than the tablet market.
Moving on, there was a follow-up question, which was just as bad.
Toni Socconaghi: You alluded to replacement cycles and differences in the iPad and the iPhone. My sense was when you were going through the iPhone 6 cycle was that you had commented that the upgrade cycle was not materially different. I think your characterization was that it accelerated a bit in the U.S., but international had grown to be a bigger part of your business and replacement cycles there were typically a little longer.
I'm wondering if there was only a modest difference between the 5S and the 6, how big a difference are we really seeing in terms of replacement cycles across the last three generations. And maybe you could help us: if the replacement cycle was flat this year relative to what you saw last year, how different would your results have been this quarter and the first half?
This is a weird hypothetical to me and I find it difficult to understand why it matters. Be that as it may, Mr. Cook does offer an answer—after correcting Mr. Socconaghi.
Tim Cook: There's a lot there. Let me just say I don't recall saying the thing that you said I said about the upgrade cycle. Let's get that out of the way.
Now, let me describe without the specific numbers—iPhone 6s upgrade cycle that we measured for the first six months of our fiscal year was slightly better than the rate we saw for the iPhone 5S 2 years ago. But it's lower than the iPhone 6. And I don't mean just a hair lower, it's a lot lower.
Without giving you exact numbers, if we would have the same rate on 6s that we did 6, it would be time for a huge party. It would be a huge difference.
The great news from my point of view is I think we're strategically positioned very well. Because we announced the SE, we are attracting customers we didn't previously attract, and that's really great. And this tough compare eventually isn't the benchmark. And the installed base is up 80 percent over the last 2 years. All of those I think bode well, and the Switcher comments I made earlier—I wouldn't underestimate that, because that's very important for us in every geography.
I remember one time—in the recent past—that I thought Mr. Socconaghi was starting to get it. I am thinking that was an aberration, rather than a trend. What's harder to understand, though, is why Apple's execs call on him during the Q&A every semester.
*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.