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    AAPL
    Earnings call· Dec 2020(Q1 FY21)

    Apple Q1 FY21 earnings call AAPL

    Jan 27, 2021 Source

    Executive summary

    Apple Q1 FY21 — Record Revenue and Strong Growth Across All Categories

    Apple reported an exceptionally strong quarter, achieving record revenue across all product categories and geographic segments, driven by robust demand for the iPhone 12 family, new M1 Macs, and iPad Air. The installed base of active devices reached a new high of 1.65 billion, with Services also setting a new revenue record. The company is optimistic about continued growth, particularly in emerging markets and with new product offerings, while navigating ongoing COVID-19 impacts and supply constraints.

    Highlights

    6

    • Achieved all-time record revenue of $111.4 billion, up 21% year-over-year.

    • iPhone revenue was a record $65.6 billion, growing 17% year-over-year.

    • Services revenue reached an all-time record of $15.8 billion, growing 24% year-over-year.

    • Wearables, Home and Accessories grew 30% year-over-year to $13 billion.

    • Mac revenue set a December quarter record of $8.7 billion, up 21% year-over-year.

    • iPad revenue was $8.4 billion, up 41% year-over-year.

    Concerns

    2

    • Services business faces a tougher year-over-year comparison in Q2 FY21 due to elevated digital services activity during lockdowns last year.

    • Wearables, Home and Accessories category growth is expected to decelerate in Q2 FY21 compared to Q1, with plans to decrease AirPods channel inventory.

    Guidance & targets

    6
    CategoryTargetConfidence
    Total company revenue growth
    accelerate on a year-over-year basis and in aggregate, follow typical seasonality on a sequential basis
    high materiality
    Medium
    Wearables, Home and Accessories category growth
    decelerate compared to Q1
    medium materiality
    Medium
    Gross margin
    similar to the December quarter
    high materiality
    Medium
    Operating expenses (OpEx)
    $10.7 billion and $10.9 billion
    medium materiality
    Medium
    Other income and expense (OI&E)
    up around $50 million
    low materiality
    Medium
    Tax rate
    around 17%
    low materiality
    Medium

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    iPhone
    Record revenue driven by strong demand for the iPhone 12 family. Active installed base reached a new all-time high. Strong performance in China, with pent-up demand for 5G iPhones.
    Active installed base: >1B devicesCustomer satisfaction (US, iPhone 12 family): 98%
    		$65.6B17%——
    Services
    All-time revenue record, with records in App Store, cloud services, Music, advertising, AppleCare, and payment services. New service offerings like Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+, and Apple One bundle are contributing to growth. Services gross margin up 150 bps sequentially due to mix. AppleCare and advertising saw improved performance due to increased in-store traffic and sequential acceleration.
    Paid subscriptions: >620MPaid subscriptions increase (sequential): >35MPaid subscriptions increase (YoY): 140MApple Music users on iOS 14 using new features: 90%US stores accepting Apple Pay: ~90%
    		$15.8B24%—68.4%
    Wearables, Home and Accessories
    New all-time revenue records in every geographic segment. Business is now the size of a Fortune 120 company. Apple Watch continues to extend its reach with a high percentage of new customers.
    Apple Watch new customers: ~75%
    		$13B30%——
    Mac
    December quarter record revenue. Strong double-digit growth in each geographic segment, with all-time records in Europe and rest of Asia Pacific. Driven by strong demand for new MacBook Air, MacBook Pro, and Mac mini powered by M1 chip. Installed base reached new all-time high.
    Customer satisfaction: 93%New to Mac customers: ~50%
    		$8.7B21%——
    iPad
    Very strong double-digit growth in every geographic segment, including an all-time record in Japan. Driven by the all-new iPad Air. Installed base reached new all-time high.
    Customer satisfaction: 94%New to iPad customers: ~50%
    		$8.4B41%——
    Products
    All-time record revenue. Products gross margin grew 530 bps sequentially, driven by leverage and mix.
    		$95.7B21%—35.1%
    Geographic Segments
    Achieved double-digit growth and new all-time records in each of the 5 geographic segments and in the vast majority of countries tracked. China, Europe, and rest of Asia Pacific saw all-time records, while Americas, Greater China, and Japan saw December quarter records.
    		—double-digit growth——

    Operational metrics

    18
    Installed base of active devices
    1.65B
    Q1 FY21

    Reached a new high watermark during the December quarter, with growth accelerating.

    Company gross margin
    39.8%up 160 bps sequentially
    Q1 FY21

    Stronger than anticipated due to leverage from higher sales and strong mix.

    Net income
    $28.8Bup $6.5B or 29% over last year
    Q1 FY21

    All-time record.

    Diluted earnings per share
    $1.68up 35% over last year
    Q1 FY21

    All-time record.

    Cash plus marketable securities
    $196B
    Q1 FY21

    Ended the quarter with almost $196 billion.

    Total debt
    $112B
    Q1 FY21

    Retired $1 billion of maturing debt.

    Net cash
    $84B
    Q1 FY21

    At the end of the quarter.

    Capital returned to shareholders
    $30B
    Q1 FY21

    Returned over $30 billion to shareholders during the December quarter.

    Dividends and equivalents
    $3.6B
    Q1 FY21

    Part of capital returned to shareholders.

    Open market repurchases
    $24B
    Q1 FY21

    Through open market repurchases of 200 million Apple shares, continuing path to net cash neutral position.

    Cash dividend per share
    $0.205
    Q1 FY21

    Declared by Board of Directors, payable on February 11, 2021, to shareholders of record as of February 8, 2021.

    App Store Small Business Program commission
    15%
    Q1 FY21

    Reduces commission for small businesses earning less than $1 million a year.

    Apple Giving program employee donations (cumulative)
    $600M
    since 2011

    Since inception in 2011.

    Apple Giving program employee volunteer hours (cumulative)
    1.6M
    since 2011

    To over 34,000 organizations.

    Racial Equity and Justice Initiative commitment
    $100M
    current

    Major new commitments announced.

    Propel Center commitment
    $25M
    current

    Launched with support of historically black colleges and universities.

    Harlem Capital and Clear Vision Impact Fund investments
    $35M
    current

    Across two investments to support minority-owned businesses.

    Investment in American economy (multiyear commitment)
    $350Bahead of schedule
    multiyear

    Ahead of schedule on multiyear commitment to invest $350 billion throughout the American economy.

    Industry KPIs

    7
    MetricValueDetails
    Capital return FCF$30BUSD
    Gross margin drivers39.8%%
    Company specific kpis—
    Market share commentary—
    Component supply constraints—
    Installed base refresh runway1.65B devicesdevices
    Revenue mix by end market segment—

    Deals & partnerships

    2
    Mitsubishi UFG Bankcustomer contract

    Mitsubishi UFG Bank is replacing 75% of its fixed phones with iPhones, expecting significant cost savings and a secure mobile platform for employees.

    Harlem Capital and Clear Vision Impact Fundinvestment$35M

    Apple is committing $35 million across two investments in Harlem Capital and the Clear Vision Impact Fund to support, accelerate, and grow minority-owned businesses.

    Risks & headwinds

    3
    COVID-19 related impactsMarch quarter

    not worsen from current assumptions

    Mitigation: Company is providing directional insights assuming impacts do not worsen.

    Tougher year-over-year comparison for Services businessMarch quarter

    elevated activity in digital services last year due to lockdowns

    Deceleration in Wearables, Home and Accessories growthMarch quarter

    compared to Q1

    Mitigation: Plan to decrease AirPods channel inventory as is typical after the holiday quarter.

    Q&A highlights

    10

    Can you discuss the strong gross margin performance, specifically the impact of a weaker dollar and currency hedges, and the outlook for gross margins in the March quarter?

    Gross margin was strong due to leverage from higher sales and a strong product mix. FX did not play a significant role in the December quarter due to hedges and some currencies still being weaker. However, if the dollar remains weak, it could provide a 60-70 basis point benefit to gross margin in the March quarter.

    “Clearly, if the dollar remains weak or continues to weaken, that can become a tailwind for us as we get into the March quarter. At current rates, we expect some level of benefit around 60 to 70 basis points for the March quarter.”

    asked by Kathryn Huberty · answered by Luca Maestri

    2 min read6 chapters

    Detailed Narrative

    01

    Record-Breaking Quarter Across the Board

    Apple achieved an all-time revenue record of $111.4 billion, marking a 21% increase year-over-year. This growth was double-digit across every product category and resulted in all-time revenue records in each of Apple's geographic segments. The company also set new records for operating income, net income, earnings per share, and operating cash flow, reflecting strong execution despite global uncertainties.

    02

    Installed Base Growth and Customer Loyalty

    The installed base of active devices reached a new high of 1.65 billion worldwide during the December quarter, with growth accelerating. The active installed base of iPhones surpassed 1 billion devices. Customer satisfaction for the iPhone 12 family in the U.S. was 98%, and for Mac and iPad, it was 93% and 94% respectively, indicating strong customer loyalty and ecosystem strength.

    03

    Product Innovation Driving Demand

    Strong demand for the iPhone 12 family, driven by 5G capabilities and camera innovations, contributed significantly to iPhone revenue growth. The introduction of the new iPad Air and the first generation of Macs featuring the M1 chip also fueled substantial growth in these categories, with approximately half of Mac and iPad purchases coming from new customers.

    04

    Services and Ecosystem Expansion

    Services revenue hit an all-time record of $15.8 billion, growing 24% year-over-year, with records in App Store, cloud services, Music, advertising, AppleCare, and payment services. The Apple One bundle, launched this quarter, aims to simplify subscriptions to multiple services. Paid subscriptions across the platform exceeded 620 million, up 140 million from a year ago, surpassing the target of 600 million by the end of calendar 2020.

    05

    Social Impact and Racial Equity Initiatives

    Apple announced new commitments through a $100 million Racial Equity and Justice Initiative, including a $25 million commitment to the Propel Center supporting historically black colleges and universities, and a new Apple Developer Academy in Downtown Detroit. Additionally, $35 million is committed to Harlem Capital and the Clear Vision Impact Fund to support minority-owned businesses. The company also highlighted its continued efforts in privacy protection and its partnership with (PRODUCT)RED for global health initiatives.

    06

    Geographic Performance and Emerging Markets

    Apple achieved double-digit growth and new all-time records in each of its five geographic segments. China saw particularly strong performance across all product categories, with iPhone, iPad, Mac, and Wearables all exceeding company averages. India also showed significant growth, with business roughly doubling year-over-year, indicating substantial headroom for market share expansion in emerging markets.

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