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    AAPL
    Earnings call· Sep 2020(Q4 FY20)

    Apple Q4 FY20 earnings call AAPL

    Oct 29, 2020 Source

    Executive summary

    Apple Q4 FY20 — Record Revenue Despite iPhone Delay, Strong Services and Mac Growth

    Apple delivered a record-setting September quarter, driven by robust performance in Services, Mac, iPad, and Wearables, despite the delayed launch of new iPhones. The company's installed base reached an all-time high, reflecting strong customer loyalty and ecosystem strength. Management expressed optimism for the December quarter, anticipating iPhone revenue growth despite the later launch schedule, and continued double-digit growth across other product categories and Services, while navigating ongoing COVID-19 related uncertainties.

    Highlights

    5

    • Achieved September quarter record revenue of $64.7 billion, up 1% YoY, despite anticipated absence of new iPhone availability.

    • Set new all-time records for Mac revenue ($9 billion, up 29% YoY) and Services revenue ($14.5 billion, up 16% YoY).

    • Wearables, Home and Accessories set a new September quarter record with $7.9 billion revenue, up 21% YoY.

    • iPad revenue was $6.8 billion, up 46% YoY, marking the highest September quarter revenue in 8 years.

    • Installed base of active devices reached an all-time high across all major product categories.

    Concerns

    4

    • iPhone revenue was $26.4 billion, impacted by the delayed launch of new iPhone models during the September quarter.

    • Greater China was most heavily impacted by the absence of new iPhones, though non-iPhone revenue grew strong double digits.

    • Supply constraints affected iPad, Mac, and Apple Watch throughout the quarter.

    • Company did not issue revenue guidance for the December quarter due to continued uncertainty around the world.

    Guidance & targets

    8
    CategoryTargetConfidence
    iPhone revenue
    grow
    high materiality
    High
    All other products (aggregate) revenue
    grow double digits
    medium materiality
    High
    Services revenue
    continue to grow double digits
    medium materiality
    High
    Gross margin
    similar to our most recent quarters
    high materiality
    Medium
    Operating expenses (OpEx)
    $10.7 billion and $10.8 billion
    medium materiality
    High
    Other income and expense (OI&E)
    around $50 million
    low materiality
    High
    Tax rate
    around 16%
    low materiality
    High
    Paid subscriptions
    reach and exceed 600 million
    medium materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    iPhone
    Revenue was impacted by the delayed launch of new iPhone models during the September quarter. Customer demand grew double digits through mid-September.
    		$26.4B———
    Services
    Set an all-time revenue record. Established new all-time records in App Store, cloud services, Music, advertising, and payment services. September quarter records in each geographic segment. Gross margin decreased 30 basis points sequentially mainly due to a different mix.
    Paid subscriptions: 585 millionPaid subscriptions increase sequentially: 35 millionPaid subscriptions increase YoY: 135 million
    		$14.5B16%—66.9%
    Wearables, Home and Accessories
    Established a new September quarter record. Set September quarter records in every geographic segment and for each of the three product categories. Wearables business is now the size of a Fortune 130 company.
    Apple Watch new customers: >75%
    		$7.9B21%——
    Mac
    Achieved an all-time record, $1.6 billion above the previous record, despite supply constraints. Grew strong double digits in each geographic segment. Set all-time revenue records in the Americas and rest of Asia Pacific, and September quarter records in Europe and Japan.
    		$9.0B29%——
    iPad
    Very impressive performance, highest September quarter revenue in 8 years despite supply constraints. Demand exceeded expectations, growing very strong double digits in every geographic segment, including an all-time record in Japan and a September quarter record in the Americas.
    		$6.8B46%——
    Products (excluding iPhone)
    Combined growth for products outside of iPhone, despite supply constraints on iPad, Mac, and Apple Watch.
    		$50.1B30%——

    Operational metrics

    16
    Total Revenue
    $64.7B1% YoY
    Q4 FY20

    September quarter record revenue.

    Total Revenue (Fiscal Year)
    $274.5B6% YoY
    FY20

    All-time revenue record for the fiscal year.

    Company Gross Margin
    38.2%up 20 bps sequentially
    Q4 FY20

    Overall gross margin for the company.

    Products Gross Margin
    29.8%growing 10 bps sequentially
    Q4 FY20

    Gross margin for product sales.

    Cash plus marketable securities
    $192B
    Q4 FY20

    Total cash and investments at quarter end.

    New term debt issued
    $5.5B
    Q4 FY20

    Amount of new debt issued during the quarter.

    Short-term borrowing facilities decreased
    $6.2B
    Q4 FY20

    Reduction in short-term debt during the quarter.

    Total debt
    $112B
    Q4 FY20

    Total debt outstanding at quarter end.

    Net cash
    $79B
    Q4 FY20

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

    Capital returned to shareholders
    $22B
    Q4 FY20

    Total capital returned to shareholders during the September quarter.

    Dividends and equivalents
    $3.5B
    Q4 FY20

    Amount paid in dividends and equivalents.

    Open market share repurchases
    $18B
    Q4 FY20

    Amount spent on share repurchases.

    Shares retired from ASR
    3.1 million
    Q4 FY20

    Additional shares retired from the final settlement of the 16th ASR.

    EPS (Fiscal Year)
    10%YoY growth
    FY20

    Earnings per share growth for the fiscal year, setting a new all-time record.

    Cash dividend per share
    $0.205
    Q1 FY21

    Dividend declared by the Board of Directors.

    5G testing
    over 100 carriers
    Q4 FY20

    Extensive testing for 5G compatibility and performance.

    Industry KPIs

    6
    MetricValueDetails
    Capital return FCF$22BUSD
    Gross margin drivers38.2%%
    Company specific kpis—
    Component supply constraintsconstrained
    Installed base refresh runwayall-time high
    Revenue mix by end market segment—

    Product announcements

    9
    ProductTypeDetails
    HomePod minilaunch
    iPhone 12 and 12 Prolaunch
    iPhone 12 mini and 12 Pro Maxlaunch
    Apple Watch Series 6launch
    Apple Watch SElaunch
    LumiHealthlaunch
    new iPad Airlaunch
    Apple Fitness+launch
    Apple Onelaunch

    Risks & headwinds

    5
    Delayed iPhone launchQ4 FY20

    Impacted iPhone revenue for Q4 FY20

    Mitigation: Anticipated and communicated; strong demand for new iPhones expected to drive Q1 FY21 growth.

    Ongoing impacts of COVID-19Ongoing, near-term

    Closures at many retail locations; continued uncertainty around the world; no revenue guidance for Q1 FY21

    Mitigation: Adapting stores for contactless pickup, new Apple Express storefronts, increased online support, contingency plans across the company.

    Supply constraintsQ4 FY20 and Q1 FY21 (current)

    Impacted iPad, Mac, Apple Watch, and new iPhone models

    Mitigation: Working hard to remedy as quickly as possible; cannot estimate when constraints will ease.

    Potential second wave of COVID-19Q1 FY21

    Uncertainty regarding business impacts in November and December

    Mitigation: Prioritizing safety, adapting retail and support operations, implementing contingency plans.

    Antitrust pressure (Google suit)Long-term

    Potential shrinkage in licensing and other segment within Services

    Mitigation: Focusing on growth of other Apple services (TV+, News+, Arcade, Card, Fitness+, App Store, iCloud); suit is a long way from conclusion.

    Q&A highlights

    6

    Can you elaborate on China's performance, especially non-iPhone revenue, and the impact of the Huawei situation? Also, what is the cadence for 5G adoption globally and key drivers?

    Non-iPhone business in China was up strong double digits. iPhone demand grew double digits pre-mid-September, but the delayed launch impacted the aggregate number. Apple is confident in growth in China for the December quarter, noting 5G is fairly advanced there. Globally, Apple is collaborating with over 100 carriers in 30+ regions for 5G, and adoption will continue to expand.

    “In terms of this quarter, given the explanation for last quarter and the momentum that we've got, and as importantly, given the initial data points that we see on iPhone 12 and iPhone 12 Pro, although we don't guide to revenue, as Luca said, I would tell you that we are confident that we will grow this quarter in China.”

    asked by Shannon Cross · answered by Timothy Cook

    2 min read6 chapters

    Detailed Narrative

    01

    Impact of COVID-19 and Business Resilience

    Apple navigated an extremely challenging macro environment in FY20, setting new all-time records for revenue ($274.5 billion), EPS, and free cash flow. The company adapted its operations, including retail stores with contactless pickup and new Apple Express storefronts, and increased online customer support. Management emphasized the team's resilience and ability to innovate under pressure, launching new products and services while maintaining focus on customer service and community support.

    02

    Product Launch Strategy and 5G Opportunity

    The September quarter saw the anticipated absence of new iPhone models, which launched in October, a few weeks later than usual. This delayed launch impacted iPhone revenue for the quarter, particularly in Greater China. However, the company is very optimistic about the new 5G-enabled iPhone 12 lineup, viewing 5G as a 'once-in-a-decade opportunity' and noting aggressive carrier offers. Initial reviews and customer response have been tremendously positive, with strong demand expected for the December quarter.

    03

    Growth in Mac, iPad, and Wearables

    Mac and iPad experienced exceptional growth, with Mac revenue reaching an all-time record of $9 billion (up 29% YoY) and iPad revenue at $6.8 billion (up 46% YoY), the highest September quarter in 8 years. Wearables, Home and Accessories also set a new September quarter record with $7.9 billion revenue (up 21% YoY). These categories benefited from increased demand for remote work and learning, with management believing these shifts will lead to a 'new normal' where these products remain critical.

    04

    Services Momentum and New Offerings

    Services achieved an all-time revenue record of $14.5 billion, growing 16% YoY, with records in App Store, cloud services, Music, advertising, and payment services. The number of paid subscriptions grew by over 35 million sequentially to over 585 million, with a target to exceed 600 million by the end of calendar 2020. New services like Apple Fitness+ and the Apple One bundle are expected to further drive growth and customer engagement.

    05

    Supply Constraints and Demand Outlook

    Apple is currently experiencing supply constraints across several product categories, including iPhone, Mac, iPad, and some Apple Watch models. While the company is working to remedy these as quickly as possible, the duration of these constraints is uncertain. Despite this, management remains bullish on demand, particularly for the new iPhone lineup, and expects double-digit growth for all products (excluding iPhone) and Services in the December quarter.

    06

    Social and Environmental Initiatives

    Apple highlighted its commitment to social and environmental responsibility, including a $100 million pledge to its Racial Equity and Justice Initiative and a commitment to be fully carbon-neutral by 2030 across its entire supply chain and device usage. The company also supported education through large school district deployments and free tools, reaching over 150,000 teachers and millions of parents and students globally.

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