Strength in Apple’s services business and sales of accessories such as Airpods and watches helped the iPhone maker increase revenues slightly in the past quarter, even though it shut down retail stores across the globe due to coronavirus.
The California technology group has also seen an “uptick” in its business in recent weeks thanks to a new iPhone model, after plunging activity last month, according to its chief financial officer.
Apple reported $58.3bn in revenue for the three months to March, its fiscal second quarter, up 1 per cent from a year ago and well above the $54.5bn expected by analysts. Net profits fell 2.7 per cent to $11.25bn.
Tim Cook, chief executive, said he had been confident in January that the group was headed for a record start to the year, but then the pandemic upended its factories in China and brought a “sharp decline” in worldwide demand in March.
The company declined to offer guidance for the current quarter, which many analysts expect to be its most difficult period related to the virus.
“We really didn’t feel there was enough visibility and certainty to provide guidance and frankly we didn’t want to do something that didn’t have much value for investors,” Luca Maestri, finance chief, told the Financial Times.
$58.3bn Apple’s revenue for the three months to March
Earnings in March were hampered by “downward pressure” that extended into the first half of April, but in the last two weeks “we’ve actually seen an uptick”, Mr Maestri added, attributing the growth to the new iPhone SE and updates for the iPad tablet and MacBook Air computer.
“I think people are starting to get more adjusted to the new reality that Covid-19 is not going away any time soon and so they are trying to adjust their spending patterns as well,” he said.
In particular, iPad and Mac sales are expected to improve in the current quarter from a year ago thanks to online learning and people working from home. “So we are going to see some advantages there,” Mr Maestri said.
Apple shares were down about 2.5 per cent in after-hours trading following the quarterly results.
Apple had originally expected an increase in total revenues of 9-15 per cent, to as high as $67bn, but it withdrew that guidance in mid-February as the coronavirus caused factory shutdowns across China. Conditions deteriorated further when Apple closed all its retail operations outside China.
Sales of the iPhone smartphone fell 6.7 per cent to $29bn, accounting for just under half of revenue for its fiscal second quarter. That drop compares with a wider 16.8 per cent fall in global smartphone shipments, according to the Omdia Smartphone Intelligence Service.
That slowdown was offset by strong increases in the services and wearables divisions — where revenues were up 17 per cent and 22.5 per cent to $13.3bn and $6.3bn, respectively. Services, the unit encompassing the App Store, warranties and licensing deals, accounted for 23 per cent of all revenue.
“It’s very clear they’ve got a business now that, although it’s built on the iPhone, it’s got the resilience to take bumps in the road due to the services revenue,” said Geoff Blaber, analyst at CCS Insight.
Mac sales were relatively steady at $5.4bn, as were iPad sales at $4.4bn.
On a call with analysts Mr Cook rejected the idea that Apple should retool its supply chain as a result of Covid-19. When the virus was ravaging China in February, Apple faced criticism for being too reliant on the country for the final assembly of its key products, but Mr Cook said there was little basis any big changes.
“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,” he said. “And so I feel good about where we are.”
Apple declared a dividend of $0.82, an increase of 6 per cent, and the board authorised the purchase of an additional $50bn of shares, less than the $75bn and $100bn authorised in the two previous years.
Mr Maestri told the FT that Apple still had “another $40bn that is outstanding from last year, so when you think about the firepower that we have . . . we think that’s a good amount that we can allocate to the buybacks”.