Apple Sees iPhone Revenues Fall in Q1, as Services and Wearables Help It Grow

iPhone revenue from -- the big earnings segment for Apple in recent years -- dropped some 7 percent from a year earlier.

Apple Sees iPhone Revenues Fall in Q1, as Services and Wearables Help It Grow

Apple shares were down more than two percent in after-hours trades

Highlights
  • Apple saw record figures in services, wearables segments
  • March was a difficult month for Apple, thanks to coronavirus
  • Apple's overall performance in the quarter is considered impressive
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Apple on Thursday reported profit slipped as it boosted revenue from services and wearables in a pandemic-cobbled start to the year for the iPhone maker.

Profit dipped to $11.2 billion (roughly Rs. 84,800 crores) on sales of $58.3 billion (roughly Rs. 4.41 lakh crores) in the fiscal second quarter, compared to net income of $11.7 billion (roughy Rs. 88,600 crores) on revenue of $58 billion (roughly Rs. 4.39 lakh crores) in the same period a year earlier.

"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," chief executive Tim Cook said in an earnings release.

Apple shares were down more than two percent in after-hours trades that followed release of the earnings figures.

Revenue from iPhones -- the big earnings segment for Apple in recent years -- dropped some seven percent from a year earlier to $29 billion (roughly Rs. 2.18 lakh crores) in a period where smartphone sales have been sagging.

"Everyone knew that March would be rough for Apple, but given the effects of coronavirus on supply chains in China and demand everywhere, Apple's performance was pretty solid," said eMarketer analyst Yoram Wurmser.

"In this environment is impressive, particularly given some of the extent of Apple's exposure to the earlier lockdowns in Asia."

The pandemic hit Apple on multiple fronts, disrupting its suppliers in China and the finances of its customers.

Revived supply
Cook said during a call with analysts that Apple feels its supply chain rebounded well from the pandemic disruption and that while it might "tweak" it with lessons learned it was not planning any dramatic shift from relying on partners in 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 and so I feel good about where we are," Cook said.

"That said, we're always looking at tweaks."

Apple was on pace for a record financial quarter before the pandemic derailed lives and economies, according to executives.

Apple saw customers return to its stores in China after they were re-opened in March, but foot traffic is less than it was prior to closures, Cook said.

With its supply chain "back up and running," Apple was optimistic that sales outside China will gain momentum as restrictions on people's movements are lifted.

Remote opportunity
Remote work and learning trends have ramped up interest in iPads and Mac computers, and Apple is seeing revved demand for digital offerings such as music, streaming television, apps, and cloud services, according to chief financial officer Luca Maestri.

"Customers are actively engaging with our ecosystem and digital services," Maestri said.

Revenue from Apple services grew 17 percent in the quarter to an all-time high of $13.3 billion (roughly Rs. 1 lakh crores).

Meanwhile, Apple smartwatches with features such as heart-rate monitoring are being used in telemedicine, along with iPads, according to Cook.

"In light of the COVID-19 pandemic, a global lockdown, with stores closed across the globe we would characterize these results as a major feat in a dark storm," Wedbush analyst Daniel Ives said in a note to investors about Apple earnings.

Market 'crushed'
In early April, Apple unveiled a new entry-level iPhone, aiming to appeal to consumers facing a suddenly bleak economic backdrop.

The updated iPhone SE has a starting price of $399, or less than half the price of its flagship devices.

The premium smartphone market, where iPhones dominate, has been "saturated" for a while and people have been waiting longer to upgrade to new models that have lacked changes dramatic enough to inspire spending.

The pandemic "wreaked havoc" on the smartphone market during the first three months of this year, with overall shipments falling 13 percent to 272 million units, according to industry tracker Canalys.

"Demand for new devices has been crushed," said Canalys senior analyst Ben Stanton said of the smartphone market.

"Poor business results, employee redundancies and furloughs are causing a great deal of anxiety and uncertainty."

In a show of confidence, Apple's board of directors approved putting another $50 billion (roughly Rs. 3.78 lakh crores) of the company's cash reserves toward buying back shares, and bumped up the dividend to 82 cents per share of common stock.


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