Apple iPhone Sales Suffer Due to COVID-19; Services and Wearables Come to the Rescue

Apple showed it is resilient and has revenue diversification during these extraordinary COVID-19 times. The company saw iPhone volumes decline 7% but was able to more than make up the difference with service revenues which grew 17% and wearables revenues which grew 23%. The company saw iPhone installed bases hit all-time highs in all regions—showing its base remains faithful to the brand.

CEO Tim Cook detailed how COVID-19 affected the quarter. The first five weeks of the quarter the company was on pace to have a record March quarter. Weeks six through ten of the quarter, China was in the midst of COVID-19. iPhone supply plummeted due to travel lockdowns, factory output coming to a halt, and supply chain disruptions. In February, China supply and demand witnessed a steep decline. During the last three weeks of the quarter, China factories recovered to near normal output. But, during this time COVID-19 had moved to Europe, the US, and the rest of the world and global demand fell.

Apple is optimistic about iPhone sales recovery because it sees China as a leading indicator. February saw a steep demand decline. March saw some recovery. April saw further recovery. Because of the strong stimulus packages in the US and Europe, Apple is optimistic the rest of the world recovery will look similar to China’s recovery. However, some regions may not snap back like China. Because of this uncertainty, Apple did not give any guidance for the June quarter. The company did note that the first half of April was ‘rough’, but it saw an uptick the past two weeks. Demand is not back to pre-COVID-19 lockdown levels.

Other key takeaways during the quarter:

iPhone revenues fell 7%, but there were positive signs

  • iPhone installed bases hit all-time highs in every region.
  • Apple stated there has been a strong response to the iPhone SE. Early purchasers find the smaller form factor appealing or are coming over from Android — not many are ‘buying down’ because of its $399 price point. Apple has high expectations because of the SE’s value and latest A13 engine, which Apple brags is better than any Android engine.
  • Apple stated that it ended the quarter with a ‘comfortable range of inventory’. Since global demand fell as China factories returned to normal, there were fears channel inventories were bloated. US checks showed some shortages in March.
  • Online sales increased for Apple. Retail had its strongest March quarter despite Apple stores closed much of the quarter.
  • Tim Cook complimented Apple’s iPhone supply chain which went from volume constraints in February back to typical volume levels towards the end of March.
  • Apple continues to increase its buyback programs. Refurbished devices helps to lower the entry price point for iPhones. It is also an admirable ‘green’ story for the company.
  • Management commented it will continue to integrate and ‘manage business wisely’ when commenting on the acquisition of Intel’s baseband business.
  • Tim Cook commented that the supply chain is global and he was not concerned about diversifying its final assembly, which is mainly in China. However, let’s be serious, the company will not comment on this until a change is made or at least in the process. What’s to gain by panicking current assembly partners?
  • Despite the COVID-19 slowdown, Europe revenues grew by 10% year-over-year.

Mac revenues fell 3% and iPad revenues fell 10%

  • Launched a new iPad Pro and MacBook Air with a lower price.
  • iPad Pro doing well in the middle of COVID-19. Consumers are not ‘buying down’.
  • The positive for this space is 50% of purchasers were new to the product.

Wearables / Home / Accessories grew 23% to $6.3 billion

  • Wearables were particularly strong growing in all geographies.
  • 70% of purchasers were new to Apple Watch.
  • Read more about Apple’s AirPods here.

Services revenues grow 17% to $13.3 billion

  • Another stellar quarter of growth despite the decline in iPhones.
  • Apple News eclipsed 25 million active users.
  • Apple Music and iCloud hit all-time records during the quarter.
  • No information on TV+ subscribers. This could remain a tough area for Apple to excel.

Like many US companies, Apple delivered a strong humanitarian response to COVID-19

  • Joint effort with Google to provide an exposure notification API for contract tracing.
  • The company has been providing one million shields per week to healthcare workers and has donated over 30 million masks.
  • Has allowed base to skip payments on Apple card in March and April.
  • Provided COVID-19 information and free entertainment on Apple TV.