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Amid COVID-19 lockdowns, Apple’s Services segment set all-time revenue record

Apple was on course for a strong performance in the March quarter, so much so, that CEO Tim Cook said the company was confident of a “record second quarter” based on its performance in the first five weeks of the quarter, but then the COVID-19 pandemic hit. As the virus spread globally, forcing governments to impose social distancing measures including lockdowns, the final three weeks of the quarter saw downward pressure on demand, particularly for iPhone and Wearables, Cook said during an investors’ call. Apple reported a revenue of $58.3 billion, up 1% from a year ago, but with the pandemic hitting supply chains and resulting in store closures, it was largely a tale of two segments for it in the quarter: while its product revenue, at $45 billion, fell down by 3% compared to last year, revenue from Services reached an all-time high of $13.3 billion, registering a 17% YoY increase. iPhone revenue of $29 billion, declined 7% year-over-year.

Online sales saw ‘phenomenal’ growth: In China, Apple’s supply chain was temporarily affected, along with a decline in demand for its products in the country. Despite that, Apple Retail set a quarterly revenue record despite stores being closed for a three-week period around the world, Cook said, attributing it to the “phenomenal” growth in its online store, including in China, and other regions. He also said that more people have now started visiting physical stores compared to February, but it is not not back to where it was before the pandemic. Since April, the company has seen an uptick across the board, which it attributes to new product launches (iPhone SE, iPad Pro), stimulus programs taking effect in April, and consumer behaviour, as people purchased products to get ready to work from home for a longer period.

Services segment saved the day for Apple: “Our long-running investment in our Services strategy is succeeding,” CFO Luca Maestri claimed, as he said that Apple expects to meet its goal of doubling its fiscal 2016 Services revenue in 2020. Apple now has over 515 million paid subscriptions across the Services segment, up 125 million from a year ago. Over the last quarter, paid subscriptions grew by over 35 million, the highest sequential growth Apple ever experienced, per Maesteri. Meanwhile, Wearables, Home and Accessories established a new March quarter record with revenue of $6.3 billion, up 23%compared to last year, and posted a strong double digit performance across all five geographic segments.

App Store revenue grew by strong double digits, owing to robust customer demand for both in-app purchases and subscriptions, he said. Third-party subscription business grew across multiple categories and increased over 30% year-over-year, again, reaching a new all-time high. Apple Music and cloud services, both set all-time revenue record and AppleCare, the company’s after-sales service offering, set a March quarter record.

The number of both transacting and paid accounts on Apple’s digital content stores reached a new all-time high during the quarter. In particular, the number of paid accounts increased “double digits” in all of the company’s geographic segments, Maestri said. Cook also revealed that Apple News reached 125 million monthly active users, as the company offered reliable information about the pandemic under a “special COVID-19 vertical”. Apple had launched Apple News+, a paid version of the service, last year, but the company did not provide any information on how that service performed.

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Advertising took a hit: As as become somewhat of a trend amid the pandemic, Apple said its advertising business was hit due to the overall reduced level of economic activity, owing to lockdowns around the world. Advertising, for instance, which includes third-party agreements, App Store search ads, and Apple News ads has been impacted by overall economic weakness and uncertainty on when businesses will reopen.

Apple found an opportunity in health and education sectors: Apart from the jump in revenue in the Services segment, the pandemic also presented Apple an opportunity in the education and health sector in particular. As lockdowns around the world forced schools to shut down and move to online teaching, that led to a spike in demand for some the iPad. Cook said the company is in the process of deploying major orders of iPads to school systems including tens of thousands in Ontario, Canada; Glasgow, Scotland and Puerto Rico. Apple is also supplying 100,000 iPads to the city of Los Angeles and 350,000 to New York City, which is its largest educational iPad deployment ever.

With new FDA (Food and Drug Administration) guidance on non-invasive remote patient monitoring, the ECG app on Apple Watch is increasingly being used for remote ECG measurements and recordings for telemedicine usage, reducing patient and healthcare provider contact and exposure, Cook said. Healthcare providers such as Geisinger Health System, NYU Langone Health, and Stanford Health Care are using apps on iPad and iPhone to support communication and video conferences between hospitalised patients and their care teams. Peloton, an American exercise equipment and media company worked with Apple’s New York teams to deploy an entire fleet of Macs overnight, so their team could work remotely.

Giving back: Apple let customers skip payments without incurring interest on Apple Card for March and April, and made Final Cut Pro X and Logic Pro X available for free for 90-days for everyone. Apple is also compensating its store employees normally despite store closures. Apple’s COVID-19 symptom checking app, which it developed in partnership with the CDC has been installed nearly 2 million times. A COVID-19 symptom checking website that the company built has received over 3 million unique visits.

On introducing new products: Apple launched the iPhone SE, and iPad Pro, among other products amid the pandemic, and Cook said that the company is “continuing to work”.

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