Apple Inc reported sales and profits that beat expectations Thursday, with Chief Executive Officer Tim Cook saying China sales were “headed in the right direction” as that country reopens from the novel coronavirus.
On the other hand, Cook said it was impossible to forecast overall results for the current quarter because of uncertainty created by the virus.
For its fiscal 2020 second quarter ended March 28, 2020, Apple posted quarterly revenue of $58.3 billion, an increase of 1 percent from the year-ago quarter, and "an all-time record for services, and a quarterly record for wearables, home, and accessories. The compamy also reported quarterly earnings per diluted share of $2.55, up 4 percent. International sales accounted for 62 percent of the quarter’s revenue.
“Despite COVID-19’s unprecedented global impact, we’re proud to report that Apple grew for the quarter, driven by an all-time record in Services and a quarterly record for Wearables,” said Tim Cook, Apple’s CEO. “In this difficult environment, our users are depending on Apple products in renewed ways to stay connected, informed, creative, and productive. We feel motivated and inspired to not only keep meeting these needs in innovative ways, but to continue giving back to support the global response, from the tens of millions of face masks and custom-built face shields we’ve sent to medical professionals around the world, to the millions we’ve donated to organisations like Global Citizen and America’s Food Fund.”
“Our active installed base of devices reached an all-time high in all of our geographic segments and all major product categories. We also generated operating cash flow of $13.3 billion during the quarter, up $2.2 billion over a year ago. We are confident in our future and continue to make significant investments in all areas of our business to enrich our customers’ lives and support our long-term plans — including our five-year commitment to contribute $350 billion to the United States economy,” said Luca Maestri, Apple’s CFO.
Tim Cook said that Apple News reached 125 million monthly active users, as the company elevated trusted information from reliable sources through a special COVID-19 vertical. Apple TV and services like FaceTime and Messages also set new all-time records for daily volume during this quarter as users relied on their devices to stay connected in a new reality. In software, at the same time that Apple's teams work as the company prepares to deliver its first ever all online Worldwide Developers Conference later this quarter, they also worked to put together our COVID-19 symptom checking Website, and app in partnership with the CDC. As of today, the app has been installed nearly two million times and the web tool has received over three million unique visits, according to Cook.
Apple CEO added that while felt some temporary supply constraints in February, the company's operations team suppliers and manufacturing partners have been returning to work and production was back at typical levels toward the end of March.
Apple reported product revenue of $45 billion, down three percent. The performance of the company's product business had three very different phases during the March quarter. Based on Apple's performance during the first five weeks of the quarter, Apple was confident it was headed toward a record second quarter. In the next five weeks of the quarter, as COVID-19, started impacting China, iPhone supply was temporarily affected as well as demand for Apple products within China. This caused Apple to withdraw its revenue guidance in February. During the last three weeks of the quarter, as the virus spread globally and social distancing measures were put in place worldwide, including the closure of all Apple retail stores outside of Greater China on March 13th and many channel partner points of sales around the world, Apple saw downward pressure on demand, particularly for iPhone and wearables.
"Given the lack of visibility and uncertainty in the near-term, we will not be issuing guidance for the coming quarter. Over the long term, though, we have a high degree of confidence in the enduring strength of our business. Our global supply chain is profoundly durable and resilient. We have shown the consistent ability to meet and manage temporary supply challenges like those caused by COVID-19," Cook said.
Apple said its installed base of active devices reached an all-time high in all of the geographic segments and all major product categories. Services revenue followed a different trend with very strong year over year growth of 17 percent. The company set a new all-time revenue record of $13.3 billion with all-time records in many of its services categories.
Company gross margin was 38.4 percent, flat sequentially with cost savings, a mixed shift towards services offset by the seasonal loss of leverage. Products gross margin was 30.3 percent, decrease in 380 basis points sequentially due to loss of leverage and a favorable mix.
Services gross margin was 65.4 percent, up 100 basis points sequentially driven by favorable mix.
Net income was $11.2 billion and earnings per share were up $2.55, up 4 percent.
Operating cash flow was very strong at $13.3 billion, an improvement of $2.2 billion over a year ago.
Apple said iPhone revenue of $29 billion declined 7 percent year over year as both iPhone supply and demand were affected by the impact of COVID-19 at some point during the quarter. On the supply side, Apple suffered from some temporary supply shortages during February. On the demand side, after a very strong first five weeks, Apple saw the impact of COVID-19 affect demand in China for the next five weeks and then more broadly around the world for the last three weeks of the quarter where locked downs and point of safe closures became more widespread in many countries.
Apple has strong performance across the board with all-time revenue records in the App Store, Apple Music video, cloud services, and the App Store search ad business. And also said a March quarter record for AppleCare. The company's new services; Apple TV+ Apple Arcade, Apple News+, and Apple Card continued to add users, content, and features while contributing to overall services growth.
Apple Music and Cloud Services both set all-time revenue records and AppleCare set a March quarter record. Paid subscriptions for all three of these services were up strong double digits. Apple says it now has over 515 million paid subscriptions across the services on its platform, up 125 million from a year ago. On a sequential basis, paid subscriptions grew by over 35 million. This is the highest sequential growth we have ever experienced. With this momentum, Apple is confident it will reach its increased target of 600 million paid subscriptions before the end of calendar 2020.
Wearables, home, and accessories establish a new March quarter record with revenue of $6.3 billion, up 23 percent year over year, with strong double-digit performance across all five geographic segments.
Mac revenue was $5.4 billion. iPad revenue was $4.4 billion.
Apple’s board of directors has declared a cash dividend of $0.82 per share of the company’s common stock, an increase of 6 percent. The dividend is payable on May 14, 2020 to shareholders of record as of the close of business on May 11, 2020. The board of directors has also authorised an increase of $50 billion to the existing share repurchase program.