Apple Q2 FY20 earnings call AAPL

Apple reported Q2 FY20 revenue of $58.3 billion, growing 1% year-over-year despite significant COVID-19 related challenges and a 100 basis point foreign exchange headwind^🌐. The quarter saw three distinct phases: strong performance in the first five weeks, followed by temporary supply constraints and reduced demand in China for five weeks, and then a broader global demand slowdown in the last three weeks due to worldwide lockdowns. The company responded by sourcing over 30 million masks and distributing more than 7.5 million face shields for frontline workers, and launched a COVID-19 symptom checking app and website in partnership with the CDC, installed nearly 2 million times. Apple also initiated a joint effort with Google for contact tracing using Bluetooth technology.

Services revenue reached an all-time record of $13.3 billion, growing 17% year-over-year, with records in App Store, Apple Music, video, cloud services, and App Store Search Ads. Wearables, Home and Accessories also set a new March quarter record with $6.3 billion in revenue, up 23% year-over-year, with strong double-digit performance across all five geographic segments. The Wearables business is now the size of a Fortune 140 company. Apple is on track to double its fiscal 2016 Services revenue in 2020.

iPhone revenue declined 7% year-over-year to $29 billion, affected by both supply and demand issues related to COVID-19. However, the active installed base of iPhones reached an all-time high, with 99% customer satisfaction for the iPhone 11 series in the U.S. Mac revenue was $5.4 billion and iPad revenue was $4.4 billion. The company launched new iPad Pro, MacBook Air, and iPhone SE products, which received strong customer interest. Approximately half of Mac and iPad purchasers globally during the quarter were new to the product, and their active installed bases also reached new all-time highs.

Apple significantly reduced iPhone channel inventory in Q2 FY20, more than the previous year, ending the quarter in a comfortable position within its target range. The global supply chain, which experienced temporary constraints in February, safely returned to typical production levels by the end of March, demonstrating its durability and resilience. The company expects to increase channel inventories in the second half of the calendar year, consistent with seasonal patterns.

Apple maintains an extraordinarily strong balance sheet with $193 billion in cash and marketable securities and $83 billion in net cash. The Board authorized an additional $50 billion for share repurchases, bringing the total available authorization to over $90 billion. A 6% increase in the quarterly dividend was also authorized, resulting in a cash dividend of $0.82 per share. The company returned $22 billion to shareholders during the March quarter, including $18.5 billion in share repurchases and $3.4 billion in dividends. Apple continues to target a net cash neutral position over time^⏳ and is committed to investing in its product and service pipeline.

In China, demand saw a steep decline in February but improved in March and further in April as stores reopened. For the rest of the world, demand sharply declined in the last three weeks of March due to lockdowns, but an uptick was observed in the second half of April. This recovery is attributed to new product launches, stimulus programs, and changing consumer behavior towards remote work and education. Online store performance was phenomenal, achieving a quarterly record despite widespread store closures.