Following the publication of its first fiscal quarter of 2020 results, encompassing the holiday quarter, Apple provided additional detail surrounding the particulars of the report during an hour-long conference call.
Tim Cook (left) and Luca Maestri (right)
Apple's first fiscal quarter earnings
Apple reported record revenue of $91.8 billion, with a diluted earnings per share of $4.99. Specifically, $56.0 billion came from the iPhone, $7.2 billion came from the Mac, and $6.0 billion came from the iPad. Apple also reported $12.7 billion in Services revenue, with an additional $10.0 billion coming from accessories, home, and wearables.
"We are thrilled to report Apple's highest quarterly revenue ever, fueled by strong demand for our iPhone 11 and iPhone 11 Pro models, and all-time records for Services and Wearables," said Tim Cook, Apple's CEO. "During the holiday quarter our active installed base of devices grew in each of our geographic segments and has now reached over 1.5 billion. We see this as a powerful testament to the satisfaction, engagement and loyalty of our customers -- and a great driver of our growth across the board."
Apple's quarter revenue and net profit from 2012 to present
"Our very strong business performance drove an all-time net income record of $22.2 billion and generated operating cash flow of $30.5 billion," said Luca Maestri, Apple's CFO. "We also returned nearly $25 billion to shareholders during the quarter, including $20 billion in share repurchases and $3.5 billion in dividends and equivalents, as we maintain our target of reaching a net cash neutral position over time."
Apple's iPhone 11, crucial to the holiday quarter's earnings
Participating in Thursday's call were Apple Chief Executive Tim Cook and Chief Financial Officer Luca Maestri.
Highlights from the earnings report, and the conference call
- This is a big beat. Nobody, even Apple, predicted the quarter to be this good - MW
- For the next quarter, Apple is predicting gross margin between 38% and 39%
- Apple is paying a $0.77 cash dividend per share of common stock, on February 13.
- Overall, sales up in China from the year-ago quarter by over $400 million, down in Japan by $600 million, up in the Americas by about $4.5 billion
- At 4:46 PM ET, AAPL is up $7.56 in after-hours trading to $324.25
- Tough Mac compare to holiday 2018. 2018 had the new MacBook Air and Mac mini. The MacBook Pro and Mac Pro aren't aimed at holiday sales. -MW
- The Thompson Reuters predicted average was $88.4 billion. Neil Cybart was closest at $89.6 billion.
- Apple hit a new spending record on research and development, too.
Q1 2020 quarterly research and development costs
- Call starts, 5:01 PM ET
- Cook: Greater China has returned to growth
- "Blowout" quarter for wearables
- iPhone 11 top selling model every week during December quarter
- Three new iPhones most popular models across the quarter
- Services grew 17% YOY, with double-digit growth in all five geographic segments
- December quarter record set for App Store and AppleCare
- Apple News over 100M monthly users
- Apple Pay revenue and transactions more than doubled YOY, 15B transactions per year
- Wearables now the size of a Fortune 150 company
- All-time revenue record for Apple Watch
- Over 75% of purchasers in the quarter new to Apple Watch
- Supply constraints for Apple Watch Series 3 and AirPods Pro all quarter
- Pro Mac hardware "strong response from the pro community"
- Retail and online stores all-time record, double-digit growth in iPhone
- Corona Virus: donating to groups, working with team members in affected areas
- There's no way the analysts are going to let Cook get away with just that - MW
- Luca Maestri starts
- Tax rate: 14.2%, favorable one-time item included
- Diluted EPS all-time record
- Active iPhone install base all-time high, growing in each segment
- 84% of business buyers in the next quarter planning on buying iPhones
- Well on the way to the goal of doubling 2016 services revenue
- Over 418 million paid subscriptions across all platforms including App Store, up 120M from YOY
- Will cross over 500M in the March quarter, aim to reach 600M by end of calendar year 2020
- Both products had difficult compares, says Maestri (like we said earlier)
- About half of Mac and iPad buyers new to the platform
- 100% of healthcare companies in Fortune 500 use Apple technologies
- Plans for more share repurchases coming in the next quarterly report
- Wide revenue prediction range due to Corona Virus concerns and uncertainties
- Question and answer time!
- Amid Daryanani - Evercore
- Q: Touch on growth in wearables, how much is coming from first-time buyers versus upgraders
- Cook: Wearables grew 44% by themselves, mostly repeating figures already given
- Q: Gross margins in March are flat QOQ - what are the offsets for better than average YOY margins?
- Maestri: Better mix and cost savings
- Tom Forte - DA Davidson
- Q: Apple TV+ success is measured how?
- Cook: Measured by number of subscribers
- Cook: "Product itself is about storytelling"
- Q: iPhone on installment basis with Apple Card, what's the impact to retail?
- Cook: Retail did well, so did Apple Card's installment plan. One of the factors for retail success is the Apple Card.
- Shannon Cross - Cross Research
- Q: China on the quarter specifics, plus Corona Virus concerns, and how will it be managed?
- Cook: Three of the top four selling smartphones in China
- Cook: Working closely with our team in China, limiting travel to critical situations. Still gathering data, and monitoring.
- Cook: Supply chain: some in Wuhan. All suppliers have alternate sources, working on mitigations.
- Cook: Supply sources outside Wuhan. Impact less clear. Opening of factories moved to Feb 10.
- Cook: Customer demand: One store closed, number of channel partners closed. Stores open reduced operating hours, frequently deep-cleaning
- Cook: Retail traffic has already been impacted in the last few days across China
- Q: Commodity management, like DRAM and Flash amplification
- Maestri: "Benign" environment for commodities
- Katy Huberty - Morgan Stanley
- Q: Which services accelerated in growth, and which decelerated?
- Maestri: Very broad-based growth in Services across five geographies.
- Maestri: All goals that were set for Services growth will be met this year, if not increased.
- Q: At some point, Apple will launch 5G. What kind of driver will this be?
- Cook: We don't comment on future products
- Kyle McNeely - Jefferies
- Q: Wireless spectrum has expanded in recent days. Will it help?
- Cook: We have great partners around the world that have been really helpful.
- The iPhone 11 family already supports the 4G expansion from last week - MW
- Q: What should we think about timeline of capacity limits on wearable relief
- Cook: Series 3 come into balance this quarter, no estimate for AirPods Pro
- Cook: "Fairly substantially off" on AirPods Pro
- Wamsi Mohan - Bank of America
- Q: Will Apple expand into advertising with expansion of Apple TV+
- Cook: "The customer wants an ad-free product" in regards to Apple TV+
- Q: Did the quarterly report have any amortization of Apple TV+ costs
- Maestri: Yes, some contribution from deferral for free subs from hardware offer, some subscriber revenue from paid subs
- Krish Sankar - Cowen and Company
- Q: Smartphone market. How do you see the low-end and high-end evolving
- Cook: Staying away from commenting on future product discussion.
- Cook: Look at worldwide 5G trend and rollout schedules for more context
- Q: Qualcomm deal & Intel baseband purchase will impact earnings how?
- Maestri: Opex covers all this. Run-rate of expenses incorporated in earnings now.
- Maestri: Revenue very strong, certain variable expenses associated with higher volume
- Mike Olson - Piper Sandler
- Q: How does ecosystem apply to wearables expansion
- Cook: "Each of our products can drive another product.
- Q: Share thoughts on how AR can impact our lives
- Cook: "There are consumer applications, there are enterprise applications. You rarely have a new technology where both segments see it as key to them."
- Cook: "I think these things will happen in parallel."
- Chris Kasso - Raymond James
- Q: iPhone Mix is helping how>
- Maestri: Mix is positive, and helps with Q1 and Q2.
- Q: Opex growing fast - expectation for return to investment
- Maestri: Ratio incredibly competitive to other companies in the sector.
- Samik Chatterjee - JP Morgan
- Q: How comfortable are you with sustaining iPhone growth through the year?
- Cook: We've given you the range for what we expect for the quarter.
- Q: What's limiting growth?
- Maestri: Japan challenged by regulatory changes. Basically, the cap in carrier discounts with two-year contracts.
- Maestri: iPhone did incredibly well over the quarter. Six of the top seven smartphones sold in Japan were iPhone.
- Maestri: Wearables, Services grew in Japan more than company average
- Call concludes