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    AAPL
    Earnings call· Mar 2021(Q2 FY21)

    Apple Q2 FY21 earnings call AAPL

    Apr 28, 2021 Source

    Executive summary

    Apple Q2 FY21 — Record Revenue and Earnings Driven by iPhone 12 and Services

    Apple delivered a record-breaking March quarter, with strong double-digit growth across all product categories and geographic segments, driven by the iPhone 12 family and robust Services performance. The company continues to see strong demand for its products, particularly Mac and iPad, which are benefiting from remote work and learning trends. Despite this success, Apple anticipates significant supply constraints for iPad and Mac in the upcoming quarter, which will impact revenue. The company remains committed to shareholder returns and strategic investments in the US economy.

    Highlights

    8

    • Record March quarter revenue of $89.6 billion, up 54% YoY

    • Record March quarter earnings, with diluted EPS of $1.40

    • iPhone revenue grew 66% YoY to $47.9 billion, driven by iPhone 12 family

    • Services revenue reached an all-time record of $16.9 billion, up 27% YoY

    • Mac revenue set an all-time record of $9.1 billion, up 70% YoY

    • iPad revenue grew 79% to $7.8 billion

    • Wearables, Home and Accessories grew 25% YoY to $7.8 billion

    • Paid subscriptions reached over 660 million, adding more than 40 million sequentially

    Concerns

    2

    • Supply constraints expected to have a revenue impact of $3 billion to $4 billion in Q3 FY21, primarily affecting iPad and Mac

    • Sequential revenue decline from Q2 to Q3 FY21 expected to be greater than prior years due to iPhone launch timing and supply constraints

    Guidance & targets

    11
    CategoryTargetConfidence
    June quarter revenue growth
    strong double digits year-over-year
    high materiality
    Medium
    Sequential revenue decline (March to June quarter)
    greater than in prior years
    high materiality
    High
    Supply constraints revenue impact
    $3 billion to $4 billion
    high materiality
    High
    Gross margin
    between 41.5% and 42.5%
    high materiality
    High
    Operating expenses (OpEx)
    between $11.1 billion and $11.3 billion
    medium materiality
    High
    Other income and expense (OI&E)
    around $50 million
    low materiality
    High
    Tax rate
    around 14.5%
    low materiality
    High
    Share repurchases authorization
    additional $90 billion
    high materiality
    High
    Dividend per share
    $0.22 per share
    high materiality
    High
    Annual dividend increases
    plan for annual increases
    medium materiality
    High
    Net cash position target
    net cash neutral position
    high materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    iPhone
    Record March quarter revenue, driven by high demand for iPhone 12 family. Consistently strong performance across the world, with strong double-digit growth in each geographic segment and March quarter records in most markets. Active installed base reached a new all-time high.
    Customer satisfaction (U.S. 451 Research): >99% for iPhone 12 family
    		$47.9 billion66%——
    Services
    All-time revenue record, with records for App Store, cloud services, music, video, advertising, and payment services. New service offerings continue to scale. Gross margin up 170 bps sequentially due to different mix. Installed base growth accelerated.
    Paid subscriptions: >660 millionSequential paid subscriptions added: >40 millionPaid subscriptions YoY increase: 145 millionPaid accounts growth: double digits in each geographic segment
    		$16.9 billion27%—70.1%
    Wearables, Home and Accessories
    New March quarter revenue records in every geographic segment. Apple Watch continues to extend its reach, with strong performance from Series 6 and SE. Exciting and busy period ahead with new product launches like Apple TV 4K and AirTag.
    Apple Watch new customers: nearly 75% of purchases
    		$7.8 billion25%——
    Mac
    All-time revenue record, driven by enthusiastic customer response to new Macs powered by the M1 chip. Strong growth in each geographic segment, with all-time records in Europe and rest of Asia Pacific, and March quarter records in Americas, Greater China, and Japan. Active installed base reached new all-time highs.
    Customer satisfaction (U.S. 451 Research): 91%New to product customers: ~50% of purchases
    		$9.1 billion70%——
    iPad
    Outstanding performance with very strong growth in every geographic segment, including an all-time record in Japan and a March quarter record in rest of Asia Pacific. Incredibly relevant for current working and learning environments. Active installed base reached new all-time highs.
    Customer satisfaction (U.S. 451 Research): 94%New to product customers: ~50% of purchases
    		$7.8 billion79%——
    Products
    March quarter record revenue. Gross margin grew 100 bps sequentially due to cost savings and FX, partially offset by seasonal loss of leverage.
    		$72.7 billion62%—36.1%
    Geographic Segment: Europe
    Great performance, better than expectations. Strong double-digit growth across all product categories, particularly iPad and Mac. Benefited from strong online business during lockdowns. Includes strong performance from emerging markets like India, Russia, and the Middle East.
    		—56%——
    Geographic Segment: Greater China
    March quarter revenue record. Strong double-digit growth across each product category. Strong reception to iPhone 12 family and new iPad Pro. Attracting new customers, with about two-thirds of Mac and iPad buyers being first-time purchasers.
    Top 2 selling smartphones in urban China: iPhone models
    		————

    Operational metrics

    17
    Company gross margin
    42.5%up 270 bps from last quarter
    March quarter

    Achieved during March quarter, guided to similar levels for June quarter.

    Net income
    $23.6 billion
    March quarter

    March quarter record.

    Diluted earnings per share (EPS)
    $1.40
    March quarter

    March quarter record.

    Cash plus marketable securities
    over $204 billion
    End of March quarter

    Strong cash position.

    New term debt issued
    $14 billion
    March quarter

    Part of capital management.

    Term debt retired
    $3.5 billion
    March quarter

    Part of capital management.

    Total debt
    almost $122 billion
    End of March quarter

    Overall debt level.

    Net cash
    $83 billion
    End of March quarter

    Calculated as cash plus marketable securities minus total debt.

    Capital returned to shareholders
    nearly $23 billion
    March quarter

    Includes dividends and share repurchases.

    Dividends and equivalents
    $3.4 billion
    March quarter

    Portion of capital returned to shareholders.

    Share repurchases (open market)
    $19 billion
    March quarter

    Portion of capital returned to shareholders.

    Supplier renewable energy commitment
    110
    As of April 2021

    Suppliers joining Apple's commitment to renewable energy.

    New clean energy brought online
    nearly 8 gigawatts
    Ongoing

    Equivalent to taking 3.4 million gas-powered vehicles off the road each year.

    Green bonds investment
    $4.7 billion
    Ongoing

    Supported transformative environmental projects globally.

    Restore Fund investment
    $200 million
    Ongoing

    Helping local communities build sustainable industries around forests, removing up to 1 million metric tons of carbon annually.

    Apple Originals award nominations
    352
    To date

    For Apple TV+ content.

    Apple Originals award wins
    98
    To date

    For Apple TV+ content.

    Industry KPIs

    7
    MetricValueDetails
    Capital return FCFnearly $23 billionUSD
    Gross margin drivers42.5%%
    Company specific kpis—
    Market share commentary—
    Component supply constraints$3 billion to $4 billionUSD
    Installed base refresh runwaynew all-time record
    Revenue mix by end market segment—

    Product announcements

    10
    ProductTypeDetails
    iPhone 12 and 12 Miniupdate
    iMaclaunch
    iPad Prolaunch
    Apple TV 4Klaunch
    AirTaglaunch
    Apple Card Familylaunch
    Apple Podcast subscriptionslaunch
    App Tracking Transparency (ATT)launch
    Apple Arcadeexpansion
    Apple Payexpansion

    Deals & partnerships

    2
    Malalacontent partnership

    New upcoming content partnership with Malala for Apple TV+.

    Harlem Capitalpartnership

    Partnership for the inaugural Entrepreneur Camp for black founders and developers, providing insights and mentorship on building and scaling an app business.

    Capital programs

    2
    U.S. economy investmentunderway$430 billion

    Benefit: 20,000 jobs

    Expanded and accelerated commitment to the U.S. economy, supporting American innovation and driving economic benefits, including a new North Carolina campus and investments in silicon engineering and 5G technology. Overachieved on prior $350 billion commitment over 5 years announced in 2018.

    Green impact acceleratorunderway

    Investing and supporting minority-owned businesses at the forefront of environmental fields in the United States.

    Risks & headwinds

    4
    Supply constraintsJune quarter (Q3 FY21)

    $3 billion to $4 billion revenue impact

    Mitigation: Doing our best to meet demand, but supply-gated, not demand-gated.

    Steeper sequential revenue declineMarch quarter to June quarter (Q2 to Q3 FY21)

    greater than in prior years

    Mitigation: Acknowledged as a combination of later iPhone launch timing and supply constraints.

    COVID-19 impactsnear term

    continued uncertainty

    Mitigation: Assuming impacts do not worsen from current levels for Q3 FY21. Company is doing its part to make end a reality, focusing on health and safety, and connecting users to vaccinations.

    Semiconductor shortagesongoing

    affecting many industries

    Mitigation: Primarily impacting iPad and Mac. Issue is on legacy nodes, making it difficult to predict easing without knowing true demand from all players.

    Q&A highlights

    7

    How are you thinking about the opportunity for refreshing the installed base and attracting new customers for iPhone, especially with 5G and pandemic impacts? Are you seeing shorter lifecycles due to carrier programs?

    Apple saw double-digit increases in both new iPhone customers and upgraders, with a record number of upgraders for a March quarter. 5G adoption is still in early stages globally, with significant upgrade potential ahead, particularly outside of China and the US.

    “a lot of the 5G upgrades will be in front of us, not behind us.”

    asked by Shannon Cross · answered by Timothy Cook

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Product Performance Across Categories

    Apple reported record March quarter revenue and earnings, with success broadly distributed across product categories. Mac and Services delivered all-time record results, while iPhone and Wearables, Home and Accessories set new March quarter records. iPhone revenue grew 66% year-over-year, driven by the popularity of the iPhone 12 family, which saw strong demand from both upgraders and new customers. iPad and Mac continued to be critical tools for remote work and learning, with iPad growing strong double digits to its highest March quarter revenue in nearly a decade, and Mac setting an all-time revenue record fueled by the M1 chip.

    02

    Services Business Acceleration and Growth Drivers

    Services achieved 27% year-over-year growth, setting new records in each geographic segment and most service categories, including App Store, cloud services, music, video, advertising, and payment services. The acceleration in Services was attributed to a return to growth in AppleCare and advertising, as well as the continued scaling of new offerings like Apple TV+, Apple Arcade, Apple News+, Apple Card, and Apple Fitness+. The installed base of active devices reached an all-time high, and paid subscriptions grew by over 40 million sequentially to more than 660 million.

    03

    Strategic Investments and Environmental Initiatives

    Apple expanded and accelerated its commitment to the U.S. economy, planning to invest $430 billion and create 20,000 jobs over the next five years, supporting innovation in silicon engineering and 5G technology. The company also highlighted its environmental efforts, with 110 suppliers joining its renewable energy commitment, bringing online nearly 8 gigawatts of new clean energy. Apple's $200 million Restore Fund aims to build sustainable industries and remove carbon from the atmosphere, alongside a green impact accelerator for minority-owned businesses.

    04

    Supply Constraints and Demand Outlook

    While the March quarter saw strong performance, Apple anticipates supply constraints to impact revenue by $3 billion to $4 billion in the June quarter, primarily affecting iPad and Mac due to semiconductor shortages and exceptionally high demand. The sequential revenue decline from the March to June quarter is expected to be steeper than in prior years, also influenced by the later launch timing and strong demand for iPhone 12, which achieved supply-demand balance only in the March quarter. Despite these challenges, demand for Apple products remains very strong.

    05

    Capital Allocation and Shareholder Returns

    Apple ended the quarter with over $204 billion in cash and marketable securities and a net cash position of $83 billion. The Board authorized an additional $90 billion for share repurchases, reflecting confidence in the business. The quarterly dividend was raised by 7% to $0.22 per share, with plans for annual increases going forward⏳. The company reiterated its long-term target of reaching a net cash neutral position over time⏳, balancing investments in future growth with returning value to shareholders.

    AI-generated summary of the company’s earnings call. Not investment advice.