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    AAPL
    Earnings call· Sep 2021(Q4 FY21)

    Apple Q4 FY21 earnings call AAPL

    Oct 28, 2021 Source

    Executive summary

    Apple Q4 FY21 — Record Revenue Despite Supply Constraints

    Apple delivered a very strong Q4 FY21, setting new revenue records across products and services despite significant supply chain headwinds. The company continues to see robust demand for its new product lineup, including the iPhone 13 and M1-powered Macs and iPads. Management is focused on navigating supply challenges, which are expected to intensify in the upcoming holiday quarter, while maintaining strong customer satisfaction and expanding its services ecosystem.

    Highlights

    5

    • Record September quarter revenue of $83.4 billion, up 29% YoY

    • All-time record for Mac revenue and quarterly records for iPhone, iPad, Wearables, Home and Accessories, up 30% YoY in products

    • Services business set an all-time record of $18.3 billion, up 26% YoY

    • Nearly one-third of revenue from emerging markets, with business in India and Vietnam doubling

    • More than 745 million paid subscriptions across the platform, up 160 million from last year

    Concerns

    4

    • Supply constraints had a $6 billion revenue impact in Q4 FY21, primarily due to industry-wide silicon shortages and COVID-related manufacturing disruptions

    • Estimated impact from supply constraints will be larger in the December quarter

    • iPad revenue expected to decline year-over-year in the December quarter due to supply constraints

    • Services growth rate expected to decelerate from the September quarter in the December quarter

    Guidance & targets

    8
    CategoryTargetConfidence
    December quarter revenue
    New revenue record
    high materiality
    High
    December quarter product category revenue growth
    Grow on a year-over-year basis
    medium materiality
    High
    December quarter iPad revenue growth
    Decline year-over-year
    medium materiality
    High
    December quarter Services growth rate
    Decelerate from September quarter but remain strong
    medium materiality
    Medium
    December quarter gross margin
    41.5% to 42.5%
    high materiality
    High
    December quarter operating expenses
    $12.4 billion and $12.6 billion
    medium materiality
    High
    December quarter other income and expense
    Around negative $50 million
    low materiality
    High
    December quarter tax rate
    Around 16%
    medium materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Products
    Revenue up 30% YoY, driven by better-than-expected demand despite supply constraints. Includes all-time record for Mac and September quarter records for iPhone, iPad, and Wearables, Home and Accessories.
    		$65.1B30%——
    Services
    All-time revenue record, with September quarter records in every geographic segment and every Services category.
    		$18.3B26%——
    iPhone
    September quarter record despite supply constraints, driven by strong customer demand for iPhone 12 family and enthusiastic response to iPhone 13 launch. Double-digit growth in each geographic segment.
    Customer satisfaction (U.S. consumers): 98%
    		$38.9B47%——
    Mac
    All-time revenue record despite supply constraints, driven by strong demand for M1-powered MacBook Air. Last 5 quarters have been the best ever for the category.
    Customer satisfaction (U.S. consumers): 97%First-time buyers: Around half
    		$9.2B———
    iPad
    September quarter revenue record despite significant supply constraints, with strong demand for M1-powered iPad Pro.
    Customer satisfaction (U.S. consumers): 97%First-time buyers: Around half
    		$8.3B21%——
    Wearables, Home and Accessories
    New September quarter record. Continued improvement and expansion of product offerings.
    		$8.8B———
    Geographic Segments
    Quarterly records in every geographic segment with strong double-digit growth across the board. Nearly one-third of revenue from emerging markets, with business in India and Vietnam doubling.
    		—Double-digit growth——

    Operational metrics

    20
    Total revenue
    $83.4B29% from last year
    Q4 FY21

    New September quarter record, in line with expectations despite larger-than-expected supply constraints.

    Total revenue (FY21)
    $366B33% annual growth
    FY21

    Record-setting fiscal year 2021.

    Company gross margin
    42.2%down 110 bps from last quarter
    Q4 FY21

    Due to higher costs and a different mix of products, partially offset by leverage.

    Products gross margin
    34.3%down 170 bps sequentially
    Q4 FY21

    Higher cost structures partially offset by leverage and mix.

    Services gross margin
    70.5%up 70 bps sequentially
    Q4 FY21

    Mainly due to a different mix.

    Net income
    $20.6Bgrew over 60% year-over-year
    Q4 FY21

    September quarter record.

    Diluted earnings per share
    $1.24grew over 60% year-over-year
    Q4 FY21

    September quarter record.

    Services revenue (FY21)
    $68Bnearly tripling in 6 years
    FY21

    Record level performance for the fiscal year.

    Cash plus marketable securities
    $191B
    Q4 FY21

    Ending balance for the quarter.

    New term debt issued
    $6.5B
    Q4 FY21

    Amount of new term debt issued during the quarter.

    Term debt retired
    $1.3B
    Q4 FY21

    Amount of term debt retired during the quarter.

    Commercial paper decreased
    $2B
    Q4 FY21

    Decrease in commercial paper during the quarter.

    Total debt
    $125B
    Q4 FY21

    Total debt at the end of the quarter.

    Net cash
    $66B
    Q4 FY21

    Net cash at the end of the quarter, progressing towards net cash neutral goal.

    Capital returned to shareholders
    $24B
    Q4 FY21

    Returned to shareholders during the September quarter.

    Dividends and equivalents
    $3.6B
    Q4 FY21

    Part of capital returned to shareholders.

    Open market share repurchases
    $20B
    Q4 FY21

    Part of capital returned to shareholders.

    Shares retired (ASR)
    5 million
    Q4 FY21

    Additional shares retired in the final settlement of the 17th ASR.

    Cash dividend per share
    $0.22
    Q1 FY22

    Declared by Board of Directors.

    Paid subscriptions
    745 millionup more than 160 million from last year
    Q4 FY21

    Across Services on the platform, showing very strong growth.

    Industry KPIs

    6
    MetricValueDetails
    Capital return FCF$24BUSD
    Gross margin drivers42.2%%
    Company specific kpis98%%
    Component supply constraints$6BUSD
    Installed base refresh runwayAll-time record
    Revenue mix by end market segmentNearly 1/3%

    Product announcements

    11
    ProductTypeDetails
    iPhone 13 lineuplaunch
    Apple Watch Series 7launch
    iPad (9th generation)launch
    iPad mini (new)launch
    MacBook Pro (reimagined)launch
    AirPods (all-new)launch
    HomePod miniupdate
    Apple Music Voicelaunch
    Fitness+expansion
    Everyone Can Code Early Learners programlaunch
    Apple Developer Academy in Detroitlaunch

    Risks & headwinds

    6
    Supply constraintsQ4 FY21

    $6 billion revenue impact in Q4 FY21

    Mitigation: Working feverishly on the supply side; COVID-related disruptions improved materially in October.

    Supply constraints (December quarter)Q1 FY22

    Larger than $6 billion

    Mitigation: Operational team working to collapse cycle times, improve yields, and fundamental capacity investment. Advocating for CHIPS Act.

    Industry-wide silicon shortagesOngoing

    Primary driver of supply constraints

    Mitigation: Focus on legacy nodes where competition for supply is high. Difficult to forecast when balance will be achieved.

    COVID-related manufacturing disruptionsQ4 FY21

    Contributed to Q4 FY21 supply constraints

    Mitigation: Improved materially across October.

    Higher cost structures for new productsQ4 FY21 and Q1 FY22

    Contributed to 110 bps sequential decline in company gross margin

    Mitigation: Partially offset by leverage and mix. Reflected in Q1 FY22 gross margin guidance of 41.5%-42.5%.

    Increased freight costsOngoing

    Significant increase

    Mitigation: Reflected in gross margin guidance.

    Q&A highlights

    6

    Details on specific supply chain issues, improvements, and which products will be most impacted going forward.

    Tim Cook explained that Q4 FY21 supply constraints of $6 billion were due to chip shortages and COVID-related manufacturing disruptions. COVID disruptions improved materially in October, but chip shortages on legacy nodes will be the primary issue for the December quarter, affecting most products, and the impact is expected to be larger than $6 billion.

    “The second of those, the COVID disruptions, have improved materially across October to where we currently are. And so for this quarter, we think that the primary cause of supply-chain-related shortages will be the chip shortage. It will affect -- it is affecting, I should say, pretty much most of our products currently and -- but from a demand point of view, demand is very robust. And so part of this is the demand also is very strong. But we believe that by the time we finish the quarter that the constraints will be larger than the $6 billion that we experienced in Q4.”

    asked by Shannon Cross · answered by Timothy Cook

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Fiscal Year 2021 Performance

    Apple reported a record-setting fiscal year 2021 with $366 billion in revenue, representing 33% annual growth. The company achieved over 20% growth across all product categories and geographic segments, setting new annual revenue records for each. This performance was driven by strong demand and the success of new product introductions throughout the year.

    02

    Supply Chain Challenges and Outlook

    Supply constraints impacted Q4 FY21 revenue by approximately $6 billion, primarily due to industry-wide silicon shortages and COVID-related manufacturing disruptions in Southeast Asia. While COVID-related disruptions improved materially in October, chip shortages on legacy nodes are expected to be the primary cause of larger supply constraints in the December quarter. Management anticipates these constraints will be greater than the $6 billion impact seen in Q4 FY21, affecting most products, with iPad revenue specifically expected to decline year-over-year.

    03

    Services Business Momentum

    The Services segment achieved an all-time revenue record of $18.3 billion in Q4 FY21, growing 26% year-over-year. This growth was broad-based across all geographic segments and service categories, including cloud services, music, video, advertising, AppleCare, payment services, and the App Store. The installed base of active devices reached a new all-time record, and paid subscriptions grew to over 745 million, up 160 million from the prior year.

    04

    Product Innovation and Customer Response

    Apple introduced several new products, including the iPhone 13 lineup, Apple Watch Series 7, new iPads, and the reimagined MacBook Pro with M1 Pro and M1 Max chips. Customer response to these new products has been very strong, with high satisfaction rates for iPhone (98%), Mac (97%), and iPad (97%). The company also launched new AirPods and expanded its HomePod mini lineup and Apple Music Voice subscription tier.

    05

    Environmental and Social Initiatives

    Apple continues to advance its environmental goals, aiming for carbon neutrality across its entire supply chain and device life cycle by 2030. Significant product advances include 100% recycled aluminum enclosures for iPad and iPad Mini, upcycled plastic water bottles for iPhone 13 antennas, and plastic-free packaging for iPhone 13, aiming to avoid 600 metric tons of plastic. The company also expanded its Racial Equity and Justice Initiative with an additional $30 million investment, focusing on STEM education and supporting underrepresented communities.

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