Apple had a strong June quarter, and Mac and iPad sales, aided by the global shelter-in-place rules, were a major contributor: iPad revenue grew, sequentially, by over 50%, while revenue from Macs increased by over 30% in the same period. iPhone sales, meanwhile, grew marginally over last year, but fell down by as much as nearly 9% compared to the March quarter. The Services category, which had done really really well for Apple in the March quarter, more or less remained unaffected, as Apple looks to have shaken off a lot of the COVID-19 induced toll. Apple had announced its earnings for June a day after the congressional antitrust hearings in the US, where the company was questioned over its App Store policies.

Net sales of the company increased to $59.7 billion in June, compared to $58.3 billion in the March quarter, aided largely by the growth in Mac and iPad sales. Net income in June increased very marginally to $11.253 billion, compared to $11.249 billion in the March quarter. The company said that results for advertising and AppleCare, its service assurance package, were impacted by the reduced level of economic activity, and store closures, owing to the pandemic.

iPhone revenue reduced QoQ, wearables revenue declined too

The curious case of iPhone sales: iPhone sales continued to fall this quarter over last last quarter by as much as 8.8%. In June, Apple raked in $26.8 billion by selling iPhones compared to $28.9 billion in the March quarter. This is an interesting trend, given that Apple launched the comparatively affordable iPhone SE this quarter (in April), which everyone expected to sell in huge numbers. But it should also be remembered that several people who bought 2019’s iPhones, launched in September, would probably not buy another iPhone in less than a year. Incidentally, iPhone sales grew marginally by 1.6% compared to the same quarter last year.

CEO Tim Cook, during a call with investors suggested that the iPhone SE had a strong launch, and responding to a question asked by an investor, he said that the iPhone 11 was the most popular iPhone, and the 11 Pro had a “strong cycle”. This suggests that the top of the line iPhone model, the 11 Pro Max — which is priced significantly higher compared to the iPhone 11 — saw a decline in sales in June.

Cook said that in April, “we expected year-over-year performance to worsen, but we saw better-than-expected demand in May and June. We attribute this increase in demand to several interactive causes including a strong iPhone SE launch, continued economic stimulus, and potentially some benefit from shelter in place restrictions lifting around the world”. He also admitted that COVID-induced store closures “definitely” affected the wearables and the iPhone.

Sales by category in Q3

Apple confirms 2020 iPhones will arrive late: “Last year we started selling new iPhones in late September. This year we project supply to be available a few weeks later,” Luca Maestri, Apple’s CFO said during the call.

iPad and Mac had a strong quarter: Unlike the iPhone, Apple had a strong quarter in iPad and Mac sales compared to the last quarter. iPad sales for instance, were at $6.6 billion in June, compared to $4.4 billion in March — and increase over 50%. Similarly, in June, revenue from Macs was at around $7 billion up, 32.2% from the March quarter. Cook said that this growth came despite supply constraints on both products.

Around half of the customers purchasing Mac and iPad during the quarter were new to that product. As a result, the active installed base for both products reached a new all-time high, Maestri said. Cook also revealed that about three out of four customers that are buying the Mac are new in China, and about two out of three that are buying the iPad there are new customers. Readers should note that a possible reason for increased Mac sales could be because Apple finally fixed the controversial butterfly style keyboards, which had a reputation of being unreliable and had garnered largely negative reviews.

Apple hosted its annual conference for developers, WWDC, in the last week of the quarter, where it announced a monumental shift from Intel-based Macs to Apple’s custom silicon-based Macs. It will be interesting to see how this announcement affects Mac sales in the September quarter, because the first Apple silicon Macs will launch closer to the end of the year.

Apple Watch was affected by store closures: Revenue from the Wearables, Home, and Accessories, which includes products like the Apple Watch, HomePod smart speakers, and AirPods, increased in June by 2.6% compared to March, totalling $6.5 billion. However, Cook said that wearables growth decelerated “as we expected”.

“The [Apple] Watch in particular is like the iPhone more affected by store closures, because some people want to try on the Watch and see what it looks like, look at different band choices and those sorts of things. And so I think as stores closed, it puts more pressure on that,” Cook said.

Sales by region in Q3

Services segment continues to shine for Apple: The revenue from Services (from services like App Store), which was Apple’s biggest winner last quarter, decreased slightly — by 1.4%— over March, totalling $13.1 billion in June. However, this was also a June quarter record in terms of revenue, Cook said.

The number of both transacting and paid accounts on Apple’s digital content stores reached a new all-time high during the June quarter with paid accounts increasing double-digits in each of its geographic segments. In aggregate, paid subscriptions grew more than 35 million sequentially and Apple now has over 550 million paid subscriptions across the services on its platform, up 130 million from a year ago. The company is expecting to have 600 million paid subscribers by the end of this year.

“We like the Services business because it is — it’s a recurring type of revenue and the margins are accretive to company margin. We did over 67% this quarter, but we want to offer very competitive services across the board,” Cook said.

Apple, expectedly, touted the App Store: Apple announced its earnings just a day after the historic antitrust hearings in the US, where it was reprimanded for its questionable App Store policies. Naturally, Cook, who was also representing Apple at the congressional hearings, took the opportunity to explain how the App Store has supposedly created economic resilience: “This quarter, a new study by independent economists at the Analysis Group founded the App Store facilitated more than 0.5 trillion in commerce globally in 2019 alone. Especially in a time of COVID-19, you can measure economic resilience in the ways in which the App Store supports remote ordering for restaurants, digital commerce for small businesses and an enduring entrepreneurial opportunity for creators and visionaries”, Cook said.

Production schedule for Apple TV+ was affected: “Production has been affected for Apple TV+ as I think it has for most people,” Cook said, while responding to an investor’s question. “I don’t have a precise date yet when we will get it restarted, but there will be some impact because we shut down in the March time frame and are yet to really restart in a significant way particularly for those that are shut in the LA area given the current status of the virus and those,” he said.

Tight channel inventories: On iPhone the inventory is “slightly less” than it was a year ago, and the iPad and Mac are constrained, and are less than they were in the year ago quarter, Cook said.

Any positive vaccine news will help Christmas sales: “Generally speaking, I think we need to see a vaccine or therapeutic or both. And there is some optimism around that and in that particular timeframe. I don’t have any information that is publicly available there. But I think that would boost consumer confidence quite a bit if it begins to happen and I think that any kind of consumer style company would benefit from that,” Cook said.

Tracking consumer spend via the Apple Card: “We saw changes in consumer spending as the shutdowns occurred and the store closures occurred, we could see that across the Card. It affected the categories that you would guess the most like travel and entertainment et cetera. But overall if you pull the lens out on the Apple Card, we’re very happy with the number of people that have Apple Card,” Cook said.

Will Apple sell its custom silicon to other companies? When Maestri was asked if Apple will ever consider selling its custom silicon for Macs as ever consider, he said that he “didn’t want to make a forever comment”.

Tele-consults on the iPad: Many hospitals such as UVA Health, Rush University Medical Center and UC San Diego Health are using apps on iPad and iPhone to have triage, monitor patients who are at home, Maestri said.

Financials snapshot:

  • Net sales: $59.7 billion (Up 2.4% QoQ)
  • iPhone sales: $26.8 billion (Down 8.8% QoQ)
  • Mac sales: $7.1 billion (Up 32.2% QoQ)
  • iPad sales: $6.6 billion (Up 50.7% QoQ)
  • Wearables, Home & Accessories sales: $6.5 billion (Up 2.6% QoQ)
  • Services sales: $13.2 billion (Down 1.4% QoQ)

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