- Q2 revenue: $58.3 billion (+0.5% YoY, -36.5% QoQ, vs. $54.5 billion expected)
- Q2 earnings: $11.2 billion (-2.7% YoY, -49.4% QoQ, above expectations)
- Q3 guidance: None given
The big number: Apple's cash cow has been the iPhone for more than a decade, generating up to three quarters of revenue for a given quarter. But the trend is shifting: Compared to the same quarter last year, iPhone sales were down nearly 7% in the last three months, to $28.9 billion. That's roughly 49% of Apple's total revenue. Total revenue was effectively flat year over year, and profits, of which the iPhone often makes up a considerable chunk, were down nearly 3%.
People are talking: "Despite COVID-19's unprecedented global impact, we're proud to report that Apple grew for the quarter, driven by an all-time record in Services and a quarterly record for Wearables," CEO Tim Cook said in a statement.
Opportunities: Despite the softness in Apple's iPhone business, the company still managed to grow a tiny bit over the same period last year, which is traditionally a slow quarter for the company. Much of that growth comes from a buffer that Apple has been steadily building over the last few years. Even as smartphone upgrade cycles have elongated, Apple has found a way to eke out more money from consumers, through a combination of new popular service offerings and hardware accessories.
Apple's services business, which includes sales of apps, games, movies and music, as well as TV, gaming and music subscriptions and Apple Pay fees, has ballooned in recent years. It's now easily the size of a Fortune 100 company on its own. The segment grew by nearly $2 billion over the same period last year, and there doesn't seem to be any indication of it slowing down. Similarly, increased sales of Apple AirPods and Apple Watches have helped offset some of the slack in iPhone sales. They're also helping spackle over the drops in Apple's other longtime businesses — the iPad and Mac — which saw drops over the same period a year ago, even as so many people move to working from home.
Threats: Apple has had to shutter all of its stores around the world as the pandemic has taken hold. Some in China have started to reopen, but most of the rest are still locked up. While Apple has made concerted efforts to push consumers onto online retail channels, some sales, such as people coming into a store for customer support and buying something while they're there, just can't be made up online. Apple actually saw a slight drop in sales for its Americas region in the quarter — its largest sales region by far — and if stay-at-home orders persist in the U.S. over the summer, it doesn't seem like much would change for next quarter.
The power struggle: Tim Cook has long been seen as the supply chain master, marshaling Apple's considerable global reach over the last two decades, but some things are just out of his control. Apple's manufacturing partners like Foxconn and Pegatron are ramping back up in China now, but even with facilities in other countries like Brazil and India, Apple's supply chain is still heavily reliant on China. The company is reportedly pushing back its production cycle for its next flagship iPhone by about a month. But Apple is still one of the richest companies on the planet, and will likely have few issues moving forward, even if its holiday sales are truncated by lengthened lead times. On the call, however, Cook said the company's supply chain was "back to typical levels" of production by the end of March after disruptions in February.
