Apple sees iPhone revenue drop in Q1 as services, wearables help grow

Apple sees iPhone revenue drop in Q1 as services, wearables help grow

Apple on Thursday said profit declined as revenue from services and wearables rose in a pandemic-hit start to the year for the iPhone maker.

Profit fell to $11.2 billion (approximately INR 84,800 crore) on sales of $58.3 billion (approximately INR 4.41 lakh crore) in fiscal second quarter, compared to net profit of $11.7 billion (approximately INR 88,600 crore) on revenue of $58 billion (approximately INR 4.39 lakh crore) in the same period of the previous year .

“Despite the unprecedented global impact of COVID-19, we are proud to report that Apple grew in the quarter, driven by an all-time record in services and a quarterly record in wearables,” Chief Executive Tim Cook said in an earnings release.

Apple shares fell more than two percent in after-hours trading following the earnings figures.

Revenue from iPhones – Apple’s biggest profit segment in recent years – fell by around seven percent year-on-year to $29 billion (approximately INR 2.18 lakh crores) at a time when smartphone sales have been falling.

“Everyone knew March was going to be tough for Apple, but given the effects of the coronavirus on supply chains in China and demand everywhere, Apple’s performance was pretty solid,” said Yoram Wurmser, an analyst at eMarketer.

“In this environment it is impressive, particularly given the extent of Apple’s exposure to previous lockdowns in Asia.”

The pandemic has hit Apple on multiple fronts, hurting its suppliers in China and its customers’ finances.

revived supply
Cook said during a call with analysts that Apple feels its supply chain has bounced back well from the pandemic disruption and that while it may “adjust” it with lessons learned, it doesn’t plan any dramatic shifts away from relying on partners in China.

“If you look at the supply chain shock that occurred this quarter, it bounced back so quickly it really demonstrates that it’s durable and resilient, so I feel good about where we are,” Cook said.

“That said, we’re always looking for adjustments.”

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

Apple has seen customers return to its stores in China after they reopened in March, but foot traffic is lower than before the closure, Cook said.

With its supply chain “getting back up and running”, Apple was optimistic that sales outside China would pick up momentum as restrictions on people’s movement are lifted.

long shot
Remote work and learning trends have boosted interest in iPads and Mac computers, and Apple is seeing accelerated 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,” said Maestri.

Apple services revenue grew by 17% in the quarter to reach an all-time high of US$13.3 billion (approximately Rs. 1 lakh crore).

Meanwhile, Apple smartwatches with features like 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 around the world, we would characterize these results as a major achievement in a black storm,” Daniel Ives, an analyst at Wedbush, said in a note to investors on Apple’s earnings.

Market ‘crushed’
In early April, Apple introduced a new entry-level iPhone, aimed at wooing consumers facing a suddenly gloomy 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 some time now, and people are waiting longer to upgrade to new models that lack changes dramatic enough to inspire spending.

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

“Demand for new devices has been squashed,” Ben Stanton, senior analyst at Canalys, said of the smartphone market.

“Bad business results, layoffs and furloughs of employees are causing a lot of anxiety and uncertainty.”

In a show of confidence, Apple’s board of directors approved to put another ₹50 billion (about Rs. 3.78 lakh crore) from the company’s cash reserves to buy back shares and increased the dividend to 82 cents per common share.

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