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    AAPL
    Earnings call· Mar 2022(Q2 FY22)

    Apple Q2 FY22 earnings call AAPL

    Apr 28, 2022 Source

    Executive summary

    Apple Q2 FY22 — Record Revenue Driven by iPhone, Mac, Wearables, and Services

    Apple delivered a record March quarter, exceeding expectations with strong performance across most product categories and an all-time high for Services revenue. Despite ongoing supply chain challenges and emerging COVID-related disruptions in China, the company demonstrated resilience. Management remains confident in its strategy and ability to navigate the uncertain macroeconomic environment, while continuing to return significant capital to shareholders.

    Highlights

    5

    • March quarter revenue record of $97.3 billion, up 9% YoY

    • iPhone, Mac, and Wearables, Home and Accessories had their best ever March quarter

    • Services set an all-time record with $19.8 billion revenue, up 17% YoY

    • Operating cash flow of $28.2 billion, net income of $25 billion, and diluted EPS of $1.52 were all March quarter records

    • Board authorized an additional $90 billion for share repurchases and raised dividend by 5% to $0.23 per share

    Concerns

    5

    • Supply constraints caused by COVID-related disruptions and industry-wide silicon shortages are expected to impact June quarter revenue by $4 billion to $8 billion

    • iPad revenue was $7.6 billion, down 2% YoY due to continued supply constraints

    • Foreign exchange is expected to be a nearly 300 basis point headwind to year-over-year growth rate in June quarter

    • Pause of sales in Russia will impact June quarter year-over-year growth rate by approximately 150 basis points

    • Services growth is expected to decelerate from March quarter performance in the June quarter

    Guidance & targets

    10
    CategoryTargetConfidence
    June quarter supply constraints impact
    $4 billion to $8 billion
    high materiality
    High
    June quarter foreign exchange headwind
    nearly 300 basis points
    medium materiality
    High
    June quarter Russia sales impact
    approximately 150 basis points
    medium materiality
    High
    June quarter Services growth
    double digits but decelerate from March quarter
    medium materiality
    Medium
    June quarter gross margin
    42% and 43%
    high materiality
    High
    June quarter operating expenses
    $12.7 billion and $12.9 billion
    medium materiality
    High
    June quarter other income and expense
    around negative $100 million
    low materiality
    High
    June quarter tax rate
    around 16%
    low materiality
    High
    Net cash position
    net cash neutral over time
    high materiality
    High
    Dividend increases
    annual increases
    medium materiality
    High

    Segment performance

    9
    SegmentRevenueYoYQoQMargin
    Total Company
    Record March quarter revenue, better than anticipated. Gross margin down 10 basis points sequentially due to seasonal loss of leverage and unfavorable foreign exchange, partially offset by favorable mix.
    		$97.3 billion9%—43.7% gross margin
    Products
    March quarter record. Gross margin down 200 basis points sequentially mainly due to seasonal loss of leverage and FX. Grew in all product categories except iPad.
    		$77.5 billion7%—36.4% gross margin
    Services
    All-time revenue record. Gross margin up 20 basis points sequentially due to a different mix. Set March quarter records in every geographic segment and services category.
    		$19.8 billion17%—72.6% gross margin
    iPhone
    March quarter record despite supply constraints, driven by strong customer response to iPhone 13 family and new iPhone SE. Set March quarter records in both developed and emerging markets. Active installed base reached a new all-time high across all geographies.
    Customer satisfaction: 99% for iPhone 13 family (451 Research survey)
    		$50.6 billion5%——
    Mac
    March quarter record despite supply constraints, driven by strong demand for M1-powered MacBook Pro. Last 7 quarters have been the best 7 quarters ever for Mac.
    March quarter record for upgradersNew customers: nearly half of customers purchasing a Mac were new to the product
    		$10.4 billion15%——
    iPad
    Revenue down due to continued supply constraints. Customer response to iPad lineup, including new M1-powered iPad Air, remains very strong. Installed base reached a new all-time high.
    New customers: over half of customers purchasing an iPad were new to the product
    		$7.6 billion-2%——
    Wearables, Home and Accessories
    March quarter record. Set March quarter revenue records in both developed and emerging markets. Business is nearly the size of a Fortune 100 business.
    Business growth: doubled in 3 yearsApple Watch new customers: over 2/3 of customers purchasing an Apple Watch were new to the product
    		$8.8 billion12%——
    Americas
    Set new March quarter record. Performance was better than expectations.
    		—19%——
    Europe
    Set new March quarter record. Grew 5% despite pausing sales in Russia during March. Number of Western European countries performed very well.
    		—5%——

    Operational metrics

    20
    Net income
    $25 billion
    March quarter

    March quarter record.

    Diluted earnings per share
    $1.52
    March quarter

    March quarter record.

    Revenue
    $220 billion10% YoY growth
    First half FY22

    Record first half of the fiscal year.

    Installed base of active devices
    all-time high
    March quarter

    Reached an all-time high for all major product categories and geographic segments.

    Paid subscriptions
    825 millionup 165 million in last 12 months
    March quarter

    Across services on the platform, showing very strong growth.

    Cash and marketable securities
    $193 billion
    End of March quarter

    Strong cash flow generation.

    Debt repaid
    $3.8 billion
    March quarter

    Repaid maturing debt.

    Commercial paper increase
    $2 billion
    March quarter

    Increased commercial paper.

    Total debt
    $120 billion
    End of March quarter

    Total debt outstanding.

    Capital returned to shareholders
    $27 billion
    March quarter

    Returned to shareholders, including dividends and share repurchases.

    Dividends and equivalents
    $3.6 billion
    March quarter

    Part of capital returned to shareholders.

    Open market share repurchases
    $22.9 billion
    March quarter

    Part of capital returned to shareholders.

    Shares retired from ASR
    5 million
    March quarter

    Additional shares retired.

    Share repurchase authorization
    $90 billion
    Additional authorization

    Board authorized additional amount for share repurchases.

    Dividend per share
    $0.235% increase
    Quarterly

    Increased dividend declared by the Board.

    Top suppliers committed to clean energy
    nearly doubled
    Recently

    Number of top suppliers committed to accelerating transition to clean energy.

    Women in leadership roles
    more than ever
    Recently

    Hired into leadership roles.

    Leadership openings filled by underrepresented communities (US)
    nearly 60%
    2021

    Of all leadership openings in the U.S. were filled by people from underrepresented communities.

    Supplier Employee Development Fund
    $50 million
    Announced

    Fund to help workers in the supply chain with educational opportunities and skill building.

    Services revenue (TTM)
    $75 billion
    Last 12 months

    Generated from Services business.

    Industry KPIs

    8
    MetricValueDetails
    Capital return FCF$28.2 billionUSD
    Gross margin drivers43.7%%
    Company specific kpis99%%
    Market share commentary—
    Services peripheral attach825 millionunits
    Component supply constraints$4 billion to $8 billionUSD
    Installed base refresh runwayall-time high
    Revenue mix by end market segment—

    Product announcements

    11
    ProductTypeDetails
    M1 Ultra chiplaunch
    Mac Studiolaunch
    Studio Displaylaunch
    iPhone 13 lineup green finishesupdate
    5G-enabled iPhone SElaunch
    M1-powered iPad Airlaunch
    Postpartum routine on Fitness+update
    Apple Heart and Movement Studymilestone
    Apple Wallet driver's license and state IDsexpansion
    Tap to Pay on iPhonelaunch
    Apple Business Essentialslaunch

    Deals & partnerships

    2
    Alaska AirlinesCustomer contract

    Began to replace conventional airport self-service kiosks with iPad Pros for faster passenger check-in and self bag drop in March.

    Western Australia Police forceCustomer contract

    Completed the world's first commercial deployment of CarPlay across their entire fleet of vehicles to complement iPhone 13s issued to each officer, allowing faster access to critical information.

    Risks & headwinds

    6
    Supply constraints from COVID-related disruptions and silicon shortagesJune quarter

    $4 billion to $8 billion impact on June quarter revenue

    Mitigation: Almost all affected final assembly factories have restarted; working with local officials; monitoring COVID case counts.

    Unfavorable foreign exchangeJune quarter

    nearly 300 basis point headwind to year-over-year growth rate

    Pause of sales in RussiaJune quarter

    approximately 150 basis point impact on year-over-year growth rate

    InflationMarch quarter and June quarter

    evident in gross margin and OpEx

    Mitigation: Managing to the net of rising and falling component costs; doing a reasonable job navigating the challenging environment.

    COVID-related demand issues in ChinaJune quarter

    some impact on customer demand

    iPad supply constraintsMarch quarter, ongoing

    2% YoY revenue decline for iPad

    Mitigation: Navigating significant supply constraint; strong customer response to iPad lineup.

    Q&A highlights

    6

    How is Apple monitoring consumer spending given market volatility, rising interest rates, and inflation, and will it impact product purchases?

    Apple is closely monitoring daily sales and acknowledges inflation's impact on gross margin and OpEx, which is factored into current guidance. The primary focus, however, is currently on supply-side issues rather than demand impact from inflation.

    “We're obviously monitoring our daily sales very closely. From an inflation point of view, we are seeing inflation. It is or was evident in our gross margin last quarter and in our OpEx last quarter, and it is assumed in the guidance that Luca gave for this quarter as well.”

    asked by Kathryn Huberty · answered by Timothy Cook

    2 min read5 chapters

    Detailed Narrative

    01

    Product Performance and Innovation

    Apple reported record March quarter revenues for iPhone, Mac, and Wearables, Home and Accessories. The iPhone 13 family saw strong demand, and the new 5G-enabled iPhone SE was introduced. Mac revenue grew 15% YoY, driven by M1-powered MacBook Pro demand, with nearly half of new Mac customers being new to the product. iPad revenue declined 2% YoY due to supply constraints, but customer response to the M1-powered iPad Air remains strong, with over half of new iPad customers being new to the product. Wearables, Home and Accessories grew 12% YoY, with the business doubling in three years and Apple Watch attracting many new customers.

    02

    Services Growth and Engagement

    Services achieved an all-time revenue record of $19.8 billion, up 17% YoY, with records in every geographic segment and services category. This growth is attributed to an expanding installed base, increased customer engagement, and a growing number of paid subscriptions, which now exceed 825 million, up 165 million in the last 12 months. Apple TV+ earned an Academy Award for Best Picture with CODA, and new services like Fitness+ and Tap to Pay on iPhone are expanding the ecosystem.

    03

    Supply Chain and Macroeconomic Headwinds

    The company is facing significant supply constraints in the June quarter, estimated at $4 billion to $8 billion, due to COVID-related disruptions in China and industry-wide silicon shortages. While most final assembly factories in the Shanghai corridor have restarted, the ramp-up is uncertain. Foreign exchange is expected to be a nearly 300 basis point headwind, and the pause in sales in Russia will impact year-over-year growth by approximately 150 basis points. Inflation is also impacting gross margin and operating expenses.

    04

    Capital Allocation and Shareholder Returns

    Apple generated $28.2 billion in operating cash flow and ended the quarter with $193 billion in cash and marketable securities, with net cash of $73 billion. The company returned nearly $27 billion to shareholders in the March quarter, including $3.6 billion in dividends and $22.9 billion in share repurchases. The Board authorized an additional $90 billion for share repurchases and increased the quarterly dividend by 5% to $0.23 per share, reaffirming the goal of achieving net cash neutral over time⏳ and planning for annual dividend increases.

    05

    Environmental and Social Initiatives

    Apple is progressing towards its goal of carbon neutrality across products and supply chain by 2030, investing in low-carbon aluminum and doubling the number of suppliers committed to clean energy. The company is also focused on inclusion and diversity, with more women in leadership roles and nearly 60% of U.S. leadership openings filled by individuals from underrepresented communities in 2021. A $50 million Supplier Employee Development Fund was announced to support workers in the supply chain.

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