Apple has surpassed Wall Street expectations in its second-quarter earnings report. The company reported an all-time high in services revenue and set a new March quarter record for iPhone revenue, even as its other divisions, including Mac and iPad, were down year over year.
The strong earnings report reflects the continued demand for the iPhone 14 lineup, even as substantial upgrades, including USB-C connectivity, are expected to be released later this year. Despite the challenges posed by the pandemic, Apple’s installed base of active devices also reached an all-time high, according to CEO Tim Cook.
Apple’s Financial Numbers:
- EPS: $1.52 per share vs. $1.43 expected
- Revenue: $94.84 billion vs. $92.96 billion expected
- Gross margin: 44.3% vs. 44.1% expected
- Net income: $24.16 billion during the quarter compared to $25.01 billion in the year-earlier period
- Total revenue was off 3% from $97.28 billion in the prior quarter
iPhone sales saved the day despite the decrease in iPad and Mac sales
The highlight of Apple’s report was iPhone sales, which grew from the year-ago quarter, even as the broader smartphone industry contracted by nearly 15%, according to an IDC estimate. iPhone revenue increased by 2% during the quarter that ended on April 1st, suggesting that parts shortages and supply chain issues that had hampered the product for the last few years had finally abated.
Apple’s other business segments did not fare as well, with Mac sales falling over 31% to just over $7.17 billion, and iPad revenue dropping nearly 13% to $6.67 billion compared to the year-ago quarter. However, Apple is rumored to be introducing a 15-inch MacBook Air and other machines in the coming weeks, which could give Mac sales some much-needed momentum.
Apple’s Services business, which includes monthly subscriptions, revenue from the App Store, warranties, and search-licensing revenue from companies like Google, saw a 5.5% year-over-year increase, signaling that the company’s highest-margin business line continued to grow. The wearables division, including Apple Watch and headphones such as AirPods, dropped only 1% during the quarter, beating analyst expectations. Last fall, the company released a more expensive Apple Watch, called Ultra.
Despite strong iPhone sales, Apple’s China regional business, which includes mainland China, Taiwan, and Hong Kong, reported $17.81 billion in sales, down from last year’s $18.34 billion. Analysts had hoped that China’s demand for electronics would rise in the quarter as the company exits out of Covid-era lockdowns and other restrictions. Meanwhile, sales grew in the Asia Pacific region to $8.11 billion.
Apple’s board authorized $90 billion in share repurchases and dividends, and the company said it paid $23 billion in buybacks and dividends in the March quarter. Apple also raised its dividend by 4% to 24 cents per share.
The overall sales of Apple fell for the second quarter in a row, but the company remained optimistic about its future. During an interview with CNBC, Cook emphasized that the quarter was “better than we expected” and confirmed that Apple was not considering broad cuts, such as mass layoffs. He also highlighted the two reasons behind Mac revenue being down year-over-year: the challenging macro situation and the difficult comparison of the M1 MacBook Pro 14 and 16-inch from the previous year’s quarter.
Apple’s upcoming Worldwide Developers Conference (WWDC) will showcase the latest major releases of iOS, iPadOS, macOS, wearOS, and tvOS. More importantly, the WWDC keynote will mark the debut of Apple’s long-awaited mixed-reality headset. The high-tech headset is rumored to feature advanced eye and hand tracking and could sell for a price upwards of $3,000. The mixed reality headset is a highly anticipated release as it marks the first new major hardware category for Apple since the Apple Watch.
Cook’s recent visit to India also gave him a positive outlook on Apple’s prospects in the country. He opened Apple stores and met with politicians during the visit and stated that the “switcher” and first-time buyer metrics look very good there for India.” Apple uses the term “switcher” to refer to first-time iPhone buyers who previously had Android devices.
Despite the challenges posed by the pandemic and the economic uncertainty that followed, Apple remains one of the most valuable companies globally. Its strong financial performance, particularly in the services and iPhone segments, reflects the continued demand for Apple’s products and services, even in the midst of global challenges. There are other difficulties such as Unionized Apple workers’ demand for improvements in working conditions.
Looking ahead, Apple’s upcoming releases, such as the mixed reality headset and the potential for new MacBook models, are likely to generate interest and excitement among consumers. Additionally, the annual Worldwide Developers Conference is a significant event for Apple and serves as a platform for the company to showcase its latest software and hardware offerings.