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    AAPL
    Earnings call· Jun 2020(Q3 FY20)

    Apple Q3 FY20 earnings call AAPL

    Jul 30, 2020 Source

    Executive summary

    Apple Q3 FY20 — Record Revenue Driven by Strong Product and Services Growth

    Apple delivered a record-setting June quarter, with strong double-digit growth across both products and services, and in all geographic segments. The company achieved its goal of doubling fiscal 2016 Services revenue six months ahead of schedule. Despite global uncertainties, Apple's installed base of active devices reached new all-time highs, reflecting strong customer loyalty and ecosystem strength. The company continues to focus on innovation and social responsibility, including a commitment to carbon neutrality by 2030 and racial equity initiatives.

    Highlights

    7

    • June quarter record revenue of $59.7 billion, up 11% YoY

    • Products revenue grew 10% to $46.5 billion, a June quarter record

    • Services revenue grew 15% to $13.2 billion, a June quarter record

    • Mac revenue grew 22% to $7.1 billion, a June quarter record

    • iPad revenue grew 31% to $6.6 billion, highest June quarter revenue in 8 years

    • Wearables, Home and Accessories revenue grew 17% to $6.5 billion, a June quarter record

    • EPS of $2.58, up 18% YoY, a June quarter record

    Concerns

    3

    • Foreign exchange created a 300 basis point headwind to total revenue

    • Gross margin decreased 40 basis points sequentially to 38% due to unfavorable FX and product mix

    • iPhone supply for new products expected to be available a few weeks later than last year

    Guidance & targets

    7
    CategoryTargetConfidence
    iPhone new product availability
    a few weeks later than last year
    high materiality
    High
    Non-iPhone product categories year-over-year performance
    strong year-over-year performance
    medium materiality
    High
    Services trends (excluding AppleCare)
    same trends that we observed during the June quarter
    medium materiality
    High
    Operating Expenses (OpEx)
    $9.8 billion - $9.9 billion
    medium materiality
    High
    Tax rate
    about 16.5%
    low materiality
    High
    Other Income and Expense (OI&E)
    $50 million
    low materiality
    High
    Paid subscriptions target
    600 million
    medium materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Greater China
    Revenue grew 2% YoY, or 6% in constant currency due to a 400 basis point FX headwind. iPad saw a June quarter record. iPhone 11 was the top-selling smartphone in Urban China. Mac also grew strong double-digit. Services set a new June quarter record. Approximately 3 out of 4 Mac customers and 2 out of 3 iPad customers were new in China.
    		—2%——
    Products
    June quarter record revenue. iPhone returned to growth, and very strong double-digit growth from iPad, Mac, and Wearables.
    		$46.5B10%——
    Services
    June quarter record revenue. All-time records in App Store, Apple Music, video, and cloud services. New services like Apple TV+, Apple Arcade, Apple News+, and Apple Card contributed to growth. Achieved goal of doubling fiscal 2016 Services revenue 6 months ahead of schedule.
    		$13.2B15%——
    iPhone
    Revenue grew 2% with customer demand improving as the quarter progressed. Strong demand in May and June attributed to iPhone SE launch and economic stimulus packages. Active installed base reached an all-time high. 98% customer satisfaction for iPhone 11, 11 Pro, and 11 Pro Max combined in the U.S.
    		$26.4B2%——
    Wearables, Home and Accessories
    New June quarter record. Business is now the size of a Fortune 140 company. Set June quarter records in the majority of markets tracked. Over 75% of Apple Watch customers were new to the product.
    		$6.5B17%——
    Mac
    June quarter record revenue. Double-digit growth in each geographic segment. All-time revenue records in Japan and Rest of Asia Pacific. June quarter records in Americas and Europe. Strong customer response to new MacBook Air and MacBook Pro. 96% customer satisfaction. Around half of purchasers were new to the product.
    		$7.1B22%——
    iPad
    Highest June quarter revenue in 8 years. Strong demand globally with double-digit growth in each geographic segment, including a June quarter record in Greater China. New iPad Pro received incredibly well. 97% customer satisfaction. Around half of purchasers were new to the product.
    		$6.6B31%——

    Operational metrics

    20
    Gross margin
    38%down 40 bps sequentially
    Q3 FY20

    Company gross margin.

    Products gross margin
    29.7%decreasing 60 bps sequentially
    Q3 FY20

    Gross margin for products.

    Services gross margin
    67.2%up 180 bps sequentially
    Q3 FY20

    Gross margin for services.

    Net income
    $11.3B
    Q3 FY20

    June quarter record.

    Active installed base
    all-time high
    Q3 FY20

    Reflects strong performance and customer loyalty.

    Transacting and paid accounts on digital content stores
    new all-time high
    Q3 FY20

    Indicates growing customer engagement in the ecosystem.

    Paid subscriptions
    over 550 millionup 35 million sequentially, up 130 million from a year ago
    Q3 FY20

    Across services on Apple's platform.

    Apple Watch new customers
    over 75%
    Q3 FY20

    Percentage of customers purchasing Apple Watch during the quarter who were new to the product.

    Mac new customers
    around half
    Q3 FY20

    Percentage of customers purchasing Mac during the quarter who were new to the product.

    iPad new customers
    around half
    Q3 FY20

    Percentage of customers purchasing iPad during the quarter who were new to the product.

    Cash plus marketable securities
    $194B
    Q3 FY20

    Total cash position at quarter end.

    Total debt
    $113B
    Q3 FY20

    Total debt at quarter end.

    Net cash
    $81B
    Q3 FY20

    Net cash at quarter end, continuing path to net cash neutral.

    Capital returned to shareholders
    $21B
    Q3 FY20

    Total capital returned during the June quarter.

    Dividends and equivalents
    $3.7B
    Q3 FY20

    Paid during the June quarter.

    Open market share repurchases
    $10B
    Q3 FY20

    Executed during the June quarter.

    Accelerated Share Repurchase (ASR) program
    $6B
    Q3 FY20

    Program initiated in May.

    ASR final settlement shares retired
    4.8 million shares
    Q3 FY20

    Additional shares retired from the 15th ASR.

    Cash dividend per share
    $0.82
    Q3 FY20

    Declared by Board of Directors.

    Stock split
    4-for-1
    Q3 FY20

    To make stock more accessible to a broader base of investors.

    Industry KPIs

    8
    MetricValueDetails
    Capital return FCF$21BUSD
    Gross margin drivers38%%
    Company specific kpis98%%
    Market share commentarytop 2 selling smartphones
    Services peripheral attachover 75%%
    Component supply constraintsconstrained
    Installed base refresh runwayall-time high
    Revenue mix by end market segment2%%

    Product announcements

    8
    ProductTypeDetails
    Develop in Swift and Everyone Can Code curriculaupdate
    Community Education Initiativeexpansion
    iOS 14launch
    iPadOS 14launch
    watchOS 7launch
    macOS Big Surlaunch
    Apple silicon for Macroadmap
    Apple Card monthly installmentsexpansion

    Deals & partnerships

    1
    HSBCcustomer contract

    HSBC deployed Apple Business Chat in its U.S. and U.K. contact centers for digital banking assistance.

    Risks & headwinds

    5
    Foreign exchange impact on revenueQ3 FY20

    300 basis point headwind to total revenue

    Foreign exchange impact on gross marginQ3 FY20

    90 basis point sequential headwind

    COVID-19 impact on Apple TV+ content productionongoing

    production affected, particularly in L.A. area

    Mitigation: working to get restarted

    COVID-19 impact on AppleCareQ4 FY20

    difficult comp due to expanded distribution a year ago and COVID-related point-of-sale closures this year

    COVID-19 impact on Wearables and iPhone salesQ3 FY20

    more affected by store closures

    Q&A highlights

    7

    Given the strong iPhone performance and affordability initiatives, is Apple entering a longer period of iPhone revenue growth after six quarters of decline?

    Tim Cook expressed optimism due to the large active installed base, strong performance of iPhone 11 and SE in various geographies, and high switcher rates for iPhone SE. He attributed the recent growth to a combination of the iPhone SE launch, economic stimulus, and store reopenings.

    “The iPhone SE, it's also clear that from the early data, we're seeing a higher switcher number than we did in the previous year, which we feel very good about.”

    asked by Kathryn Huberty · answered by Timothy Cook

    2 min read6 chapters

    Detailed Narrative

    01

    COVID-19 Impact and Adaptability

    Apple navigated the uncertain environment of COVID-19 by responsibly reopening retail stores with enhanced health and safety precautions in some regions, while reclosing others where the virus reemerged. The company observed significant improvement in demand for all products in May and June after initial impacts in April due to widespread lockdowns and point-of-sale closures. This adaptability was crucial for achieving record results.

    02

    Services Growth and Achievement

    Services revenue reached a June quarter record of $13.2 billion, growing 15% year-over-year. The company achieved its goal of doubling its fiscal 2016 Services revenue six months ahead of schedule. Digital services like the App Store, Apple Music, video, and cloud services saw all-time revenue records, with strong engagement across iMessage, Siri, and FaceTime. Paid subscriptions grew by over 35 million sequentially, reaching over 550 million.

    03

    Mac and iPad Performance

    Mac revenue grew 22% to $7.1 billion, and iPad revenue grew 31% to $6.6 billion, both setting June quarter records. This strong performance was driven by increased demand for working and learning from home, despite supply constraints. Customer satisfaction for Mac and iPad was 96% and 97% respectively, with approximately half of new purchasers being new to the product, leading to new all-time highs in active installed bases.

    04

    iPhone and Wearables Performance

    iPhone revenue grew 2% this quarter, exceeding expectations due to a strong iPhone SE launch, economic stimulus, and easing shelter-in-place restrictions. Wearables, Home and Accessories grew 17% to $6.5 billion, setting a non-holiday revenue record, despite expected deceleration due to store closures. Over 75% of Apple Watch purchasers were new to the product.

    05

    Racial Equity and Justice Initiative and Carbon Neutrality

    Apple committed $100 million to launch its Racial Equity and Justice Initiative and announced it will be fully carbon-neutral by 2030 across its entire supply chain and device energy use. These initiatives underscore the company's commitment to social responsibility and environmental sustainability, aligning its values with its business success.

    06

    Apple Silicon Transition for Mac

    Apple announced a two-year transition to Apple silicon for the Mac, aiming for unprecedented🌐 performance and a common architecture across all Apple products. The first Mac with Apple silicon is expected to ship later in the year, marking a significant innovation roadmap for the company.

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