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    AAPL
    Earnings call· Jun 2021(Q3 FY21)

    Apple Q3 FY21 earnings call AAPL

    Jul 27, 2021 Source

    Executive summary

    Apple Q3 FY21 — Record Revenue and Strong Product/Services Growth

    Apple delivered a record June quarter, driven by robust double-digit growth across all product and services categories and geographic segments, reflecting strong customer demand and ecosystem engagement. Despite ongoing global uncertainties and anticipated increased supply constraints in the upcoming quarter, the company maintains a positive outlook, emphasizing continued innovation and customer satisfaction.

    Highlights

    5

    • Set a new June quarter revenue record of $81.4 billion, up 36% year-over-year.

    • Services revenue reached an all-time record of $17.5 billion, growing 33% year-over-year.

    • iPhone revenue set a June quarter record of $39.6 billion, growing 50% year-over-year.

    • Paid subscriptions across the platform exceeded 700 million, up over 150 million from last year.

    • Returned $29 billion to shareholders during the quarter, including $17.5 billion in share repurchases.

    Concerns

    3

    • Supply constraints for the September quarter are expected to be greater than the June quarter, primarily impacting iPhone and iPad.

    • Foreign exchange impact on year-over-year revenue growth is expected to be 3 points less favorable in the September quarter.

    • Services growth rate is expected to return to a more typical level, lower than the 33% seen in Q3 FY21.

    Guidance & targets

    6
    CategoryTargetConfidence
    September Quarter Revenue Growth
    very strong double-digit year-over-year revenue growth
    high materiality
    High
    September Quarter Revenue Growth
    lower than our June quarter year-over-year growth of 36%
    high materiality
    High
    September Quarter Gross Margin
    between 41.5% and 42.5%
    high materiality
    High
    September Quarter Operating Expenses (OpEx)
    between $11.3 billion and $11.5 billion
    medium materiality
    High
    September Quarter Other Income and Expenses (OI&E)
    around 0
    low materiality
    High
    September Quarter Tax Rate
    around 16%
    low materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    Products
    June quarter record.
    		$63.9 billion37%——
    Services
    All-time revenue record, with June quarter records in each geographic segment. All-time records for cloud services, music, video, advertising, and payment services. June quarter records for App Store and AppleCare.
    		$17.5 billion33%——
    iPhone
    June quarter record. Strong double-digit growth in each geographic segment. Customer satisfaction for iPhone 12 family at 97% in the U.S.
    		$39.6 billion50%——
    Wearables, Home and Accessories
    New June quarter revenue records in every geographic segment. Nearly 75% of Apple Watch customers were new to the product (85% in China).
    		$8.8 billion36%——
    Mac
    June quarter record despite supply constraints. Last 4 quarters have been best ever. About half of customers purchasing Mac were new to the product. Customer satisfaction at 92% in the U.S.
    		$8.2 billion16%——
    iPad
    Strong performance despite significant supply constraints. About half of customers purchasing iPad were new to the product. Customer satisfaction at 95% in the U.S.
    		$7.4 billion12%——
    Greater China
    Set a June quarter revenue record. Strong response to 12 Pro and 12 Pro Max. Also set June quarter records for Wearables, Home and Accessories, Mac, and Services. 85% of Apple Watch customers in China were new to the product.
    		—58%——
    Emerging Markets
    Set June quarter records in Mexico, Brazil, Chile, Turkey, UAE, Poland, Czech Republic, India, Thailand, Malaysia, Vietnam, Cambodia, Indonesia.
    		—very strong double-digit growth——

    Operational metrics

    24
    Company Gross Margin
    43.3%up 80 bps sequentially
    Q3 FY21
    Products Gross Margin
    36%down 10 bps sequentially
    Q3 FY21
    Services Gross Margin
    69.8%down 30 bps sequentially
    Q3 FY21
    Net Income
    $21.7 billionJune quarter record
    Q3 FY21
    Diluted EPS
    $1.30June quarter record
    Q3 FY21
    Cash and Marketable Securities
    $194 billion
    Q3 FY21
    Total Debt
    $122 billion
    Q3 FY21
    Net Cash
    $72 billion
    Q3 FY21
    Shareholder Returns
    $29 billion
    Q3 FY21
    Dividends Paid
    $3.8 billion
    Q3 FY21
    Open Market Share Repurchases
    $17.5 billion
    Q3 FY21
    Accelerated Share Repurchase Program
    $5 billion
    Started May (Q3 FY21)
    Paid Subscriptions
    >700 millionup >150 million YoY, nearly 4x from 4 years ago
    Q3 FY21
    App Store Developer Billings and Sales
    $643 billionup 24%
    2020
    iPhone Active Installed Base
    >1 billion
    Earlier this year (FY21)

    passed 1 billion active devices earlier this year

    Total Active Devices
    1.65 billion
    January call (FY21)

    total active devices just for clarification

    iPhone Switchers Growth
    strong double-digit growth
    Q3 FY21
    iPhone Upgraders Growth
    strong double-digit growth
    Q3 FY21

    largest upgrade quarter for a Q3 ever

    Mac New Customers
    around half
    Q3 FY21

    around half of the customers purchasing Mac... were new to that product

    iPad New Customers
    around half
    Q3 FY21

    around half of the customers purchasing iPad... were new to that product

    Apple Watch New Customers (Global)
    nearly 75%
    Q3 FY21

    nearly 75% of the customers purchasing Apple Watch during the quarter being new to the product

    Apple Watch New Customers (China)
    85%
    Q3 FY21

    For the Apple Watch, that number was 85% [in China].

    Supply Constraints Impact
    slightly below the low end of $3 billion to $4 billion
    Q3 FY21

    We were able to mitigate some of those constraints during the June quarter. And so we came in at a number that was slightly below the low end of that range that we had quoted at the beginning of the quarter

    Company Gross Margin
    38.2%
    Q3 FY20

    a year ago, we were at 38.2%, so almost 400 basis points of expansion on a year-over-year basis

    Industry KPIs

    8
    MetricValueDetails
    Capital return FCF$29 billion (total returned), $3.8 billion (dividends), $17.5 billion (open market repurchases), $5 billion (ASR program)USD
    Unit shipments ASP—
    Gross margin drivers43.3% (Company GM), 36% (Products GM), 69.8% (Services GM)%
    Market share commentary—
    Services peripheral attach700 million
    Component supply constraintsgreater
    Installed base refresh runwayover 1 billion (iPhone), 1.65 billion (total active devices)units
    Revenue mix by end market segment$81.4 billion (total), $63.9 billion (Products), $17.5 billion (Services), $39.6 billion (iPhone), $8.8 billion (Wearables, Home and Accessories), $8.2 billion (Mac), $7.4 billion (iPad)USD

    Product announcements

    8
    ProductTypeDetails
    Apple Podcasts subscriptionslaunch
    Spatial Audio for Apple Musiclaunch
    Apple TV 4K with redesigned Siri Remotelaunch
    AirTagslaunch
    New iMac (M1)launch
    New iPad Pro (M1)launch
    iOS 15, iPadOS, macOS, watchOS updatesroadmap
    iCloud+ and Apple Wallet featuresupdate

    Deals & partnerships

    3
    MassMutualCustomer Contract / Enterprise Adoption

    Offering M1 MacBook Pro to all employees and equipping all conference rooms with M1 Mac Minis in preparation for return to work.

    ItalgasCustomer Contract / Enterprise Adoption

    Replacing every employee's Windows laptop with the new MacBook Air powered by Apple's M1 chip to bring the latest technology to its workforce.

    GrabCustomer Contract / Enterprise Adoption

    Adding M1 MacBook Air to its company-wide M1 Mac deployment.

    Risks & headwinds

    4
    Uneven Recovery to Pandemic / Delta VariantNear term (September quarter)

    COVID-related impacts to our business do not worsen from what we are projecting today for the current quarter.

    Mitigation: doing all we can to help chart a course to a healthier and more equitable world; continuing to stay focused on supporting the global response to the pandemic

    Supply ConstraintsSeptember quarter

    expected to be greater than what we experienced during the June quarter (which was slightly below the low end of $3 billion to $4 billion). Primarily impacting iPhone and iPad.

    Mitigation: we'll do everything we can to mitigate whatever set of circumstances we're dealt.

    Foreign Exchange ImpactSeptember quarter

    3 points less favorable than it was during the June quarter.

    Services Growth Rate NormalizationSeptember quarter

    Services growth rate to return to a more typical level, lower than the 33% seen in Q3 FY21.

    Q&A highlights

    7

    Clarification on the September quarter guidance, especially regarding the impact of last year's later iPhone launch and the expected increase in supply constraints.

    Luca Maestri reiterated expectations for very strong double-digit revenue growth in September, but lower than Q3's 36% due to less favorable FX impact (3 points less), services growth returning to typical levels (Q3 benefited from easy compares), and greater supply constraints primarily for iPhone and iPad. Tim Cook added that component costs are declining, but freight costs are high, and they are doing everything to mitigate constraints.

    “We expect supply constraints during the September quarter to be greater than what we experienced during the June quarter. The constraints will primarily impact iPhone and iPad.”

    asked by Christopher Caso · answered by Luca Maestri

    2 min read6 chapters

    Detailed Narrative

    01

    Strong Global Performance and Customer Engagement

    Apple achieved record June quarter revenue of $81.4 billion, with double-digit growth across all product and services categories and every geographic segment. This performance was supported by high customer satisfaction, with iPhone 12 family satisfaction at 97% in the U.S., Mac at 92%, and iPad at 95%. The active installed base of devices reached a new all-time record, indicating strong customer loyalty and ecosystem engagement.

    02

    Services Momentum and Diversification

    Services revenue hit an all-time record of $17.5 billion, growing 33% year-over-year. This growth was broad-based, with records in cloud services, music, video, advertising, and payment services. The company now boasts over 700 million paid subscriptions, a significant increase of more than 150 million from the previous year, highlighting the success of new offerings like Apple TV+, Apple Arcade, and Apple One bundles.

    03

    Product Strength Driven by Innovation

    iPhone revenue grew 50% year-over-year to $39.6 billion, driven by strong demand for the iPhone 12 lineup and early 5G adoption. Mac and iPad also saw record June quarters, with Mac revenue at $8.2 billion (up 16%) and iPad at $7.4 billion (up 12%), both benefiting from the M1 chip. Wearables, Home and Accessories grew 36% to $8.8 billion, with Apple Watch seeing nearly 75% new customers.

    04

    Supply Chain Challenges and Mitigation

    While the June quarter saw supply constraints of less than $3 billion to $4 billion, primarily affecting iPad and Mac, the company anticipates these constraints to be greater in the September quarter, impacting iPhone and iPad. Management noted that component costs are generally declining, but freight costs are elevated. The majority of constraints are due to industry-wide shortages, particularly in legacy nodes for silicon.

    05

    Capital Allocation and Shareholder Returns

    Apple returned $29 billion to shareholders in the June quarter, including $3.8 billion in dividends and $17.5 billion through open market share repurchases of 136 million shares. A $5 billion accelerated share repurchase program was also initiated in May, resulting in the retirement of 32 million shares. The company ended the quarter with $194 billion in cash and marketable securities and a net cash position of $72 billion.

    06

    Commitment to Social and Environmental Initiatives

    Tim Cook highlighted Apple's ongoing efforts in racial equity and justice, including innovation grants to HBCUs for engineering programs, and contributions of over $1 billion to affordable housing initiatives in California. The company also emphasized its focus on accessibility features in its software updates and supporting developers through the App Store economy, which generated $643 billion in billings and sales in 2020.

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