Apple recently released the results for its 2020 fiscal fourth quarter (which ran from June 28, 2020, to September 26, 2020) and held a call with analysts to discuss the results. Apple’s fiscal fourth quarter is typically a transitional quarter; it is the first fiscal quarter — the one that we are in now — that is traditionally Apple’s big revenue quarter because of holiday sales. But everything is different this year as a result of COVID-19. For example, in 2020, the fourth fiscal quarter was the best quarter for Mac sales in the history of the company. Not only did Apple have the traditional back-to-school sales (including the MacBook Air that I purchased for my son as he started high school) but there were also many folks purchasing new Macs to use during the pandemic. In total, Apple saw $64.7 billion in revenue for the quarter, a record for Apple in a fiscal fourth quarter and 29% higher than this time last year. Wow. If you want to get all of the nitty gritty details, you can download the audio from the announcement conference call from iTunes, or you can read a transcript of the call prepared by Seeking Alpha, or a transcript prepared by Jason Snell of Six Colors. Apple’s official press release is here. As always, I’m not as interested in the financial details as I am the statements of Apple executives during the call that are of interest to iPhone and iPad users. Here are the items that stood out to me.
iPhone
- iPhone revenue was $26.4 billion this quarter. That’s exactly the same as last quarter, but more importantly, is down 21% versus the same quarter last year when revenue was $33 billion. But there is an obvious reason for the year-over-year decrease. In 2019 (like most recent years), Apple started selling a new iPhone near the end of the fiscal fourth quarter. But this year, the new iPhone was delayed, presumably because of the pandemic. The iPhone 12 and iPhone 12 Pro didn’t go on sale until October 24, and the iPhone 12 mini and iPhone 12 Pro Max go on sale this month.
- Apple CEO Tim Cook suggested that if it were not for that difference, iPhone revenue have been even higher than last year, pointing out that iPhone sales were up year-over-year until mid-September.
- Cook said that there are more iPhones in use now that at any time in Apple’s history.
iPad
- The iPad did incredibly well this quarter, with revenue of $6.8 billion, up substantially from $4.7 billion this time last year.
- Apple didn’t provide theories why iPad sales were so high. Presumably, the large increase in remote working was a big reason for this.
Other
- Cook said that Apple’s wearables business — which includes the Apple Watch and AirPods — is now the size of a Fortune 130 company.
- Over 75% of people who purchased an Apple Watch last quarter were purchasing their first Apple Watch.
- Apple has been incredibly successfully during the pandemic. In part, that is because work-from-home and school-from-home has prompted many people to upgrade their mobile technology, and Apple is a leader in that area. But Cook said that part of the success is also because being innovative is part of Apple’s DNA: “When we first began to grapple with COVID-19, I said there are worse things for a company whose business is innovation than having to periodically do just about everything in an entirely new way. This year we not only launched our most powerful and compelling generation of hardware, software, and services ever. We did it in a way that pushed us to re-imagine every part of that innovation process, down to how we share these announcements with the world, and how we get new products into our customer’s hands. Working from kitchen tables and bedrooms, in distanced office settings, and reworked labs and manufacturing facilities, the team rebuilt every part of the plane while it was midair. And the results speak for themselves.” He continued: “Innovation isn’t just about what you make. It’s about how you approach problems. And these teams, and every team across Apple, have not faced a single question this year that they haven’t found an answer to with passion and resolve. Their actions didn’t just meet the moment, they will make us a better company moving forward.”
- Apple may not be a bank, but it now offers quite a few financial products such as Apple Card, Apple Pay, and Apple Cash. When an analyst asked Apple about this area, Cook responded that Apple is “very bullish about this area and view that there are more things that Apple can do in this space. And so it’s an area of great interest to us.” In an article for Macworld, Jason Snell pointed out that the last time Cook talked about an “area of great interest,” it was the wrist. And then about a year later, Apple introduced the Apple Watch. So perhaps Cook was indicating that Apple has another financial product coming soon.
- Snell had another interesting observation in a separate article that he wrote for his Six Colors website. We think of Apple as being a company that makes products, but that is far less true today than it once was. Not only does Apple have those financial services, but Apple also makes a lot of money in the category of Services. Services accounted for 22% of Apple’s overall revenue in the past quarter. Snell pointed out that Apple’s gross profit margin last quarter was 30%, but the gross margin for Services was 67%. Or as Snell put it: “A dollar of Services revenue generates more profit than two dollars of product revenue.” Just a few days ago, I signed up for one of Apple’s newest services, the Apple One bundle. By paying a single price for a number of services that I used to purchase separately — iCloud storage, Apple Music, Arcade — as well as the Apple TV+ service that I had intended to start paying for once my free trial ends, I’m actually paying less money with an Apple One bundle. But of course, Apple hopes that most folks will ultimately end up spending more by purchasing a bundle. And I suppose that could be true for me too. Although my kids use the Apple Arcade service, I could see myself cancelling it at some point, but. now that it is included in my bundle, I guess I’ll just end up keeping it. The iPhone and iPad may entice many people to be Apple customers, but it is the revenue associated with services that makes Apple so profitable.