Apple Q2 2020: Five things you need to know

Yeah, even in the grips of the coronavirus pandemic, Apple is far from doomed.
Written by Adrian Kingsley-Hughes, Senior Contributing Editor

It seems that Apple was on track for a very good Q2 2020, and then the coronavirus pandemic hit. But rather than panicking and being pushed onto the back foot, Apple is rising to the challenges presented by the SARS-CoV-2 virus.

And the company's earnings call gives us an insight not only into how the company has responded to the pandemic, but also what it has been doing to both help employees and customers, and also lay the groundwork for the future.

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#1: What kind of quarter would Apple have had if the pandemic hadn't happened?

A good one. Here's how it ended:

  • Revenue: $58.3 billion, up 1 percent from a year ago
  • Products revenue: $45 billion, down 3 percent
  • Service revenue: All-time record of $13.3 billion, up 17 percent
  • Gross margin: 38.4 percent, flat

Here's what Apple CEO Tim Cook had to say about Q2 2020:

"I'll start with China. If you look at what happened in China, we were having a really good January. The lockdowns started there toward the end of January, as you know. February, we saw a steep decline in demand. We closed our stores in February. As the lockdown completed in mid-February toward the second half of February, we began to open stores. We opened them on a staggered basis that took about 30 days until mid-March. And from a demand point of view, we saw an improvement in March over February. And if you look at kind of where we are today, we've seen further improvement in April as compared to March. And so that's China."

If you look at the rest of the world, we were doing great in January, the first 5 weeks of the quarter. And we do believe that we were headed toward the sort of the top end of our expectations that we had talked to you about on the last call, that the next 5 weeks were spent sort of reacting and getting the supply chain back up in full force, and working through the sharp decline in China that I already talked about."

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#2: What is Apple doing to help?

A lot. The earning's call is peppered with things. Here's a selection by Cook:

"While our product teams were preparing to launch a new iPad Pro, Magic Keyboard, MacBook Air and the new iPhone SE, all of which have been very well received by reviewers and consumers alike, they were also working with our suppliers to design, test, manufacture and distribute more than 7.5 million face shields, and we continue to ship more than 1 million of these every week to the doctors, nurses and medical personnel on the front lines."

"We let customers skip payments without incurring interest on Apple Card for March and April in light of financial hardship for many families."

"In software, at the same time that our teams worked with great creativity and excitement as we prepared to deliver our first ever all-online Worldwide Developers Conference later this quarter, they also worked with the same creativity and speed to put together our COVID-19 symptom checking website and app in partnership with the CDC. As of today, the app has been installed nearly 2 million times, and the web tool has received over 3 million unique visits."

"We're also doing what we can to help our employees, their families and, by extension, their communities stay safe and well by modifying our operations where appropriate. This extends, of course, to our retail employees."

"Since early March, we've seen unprecedented demand for our Pro apps from students, enthusiasts and creative professionals. These folks are keeping us all entertained and inspired as we stay at home, and to help them do it, we made Final Cut Pro X and Logic Pro X available for free for 90 days for everyone. And the reaction has been overwhelming, driving software downloads and usage to record levels."

"We've made major corporate donations to response efforts around the world to support Global Citizen as well as a new fund for Americans experiencing food and security as a result of the crisis. When you tally these things up and consider our ongoing 2:1 match for employee donations, Apple's contributions to the global response are significant, diverse and a great source of pride for the whole team."

#3: What products have been hardest hit?

Cook tells us:

"During the last 3 weeks of the quarter, as the virus spread globally and social distancing measures were put in place worldwide, including the closure of all our retail stores outside of Greater China on March 13 and many channel partner points of sales around the world, we saw downward pressure on demand, particularly for iPhone and Wearables."

#4: How are services doing?

People are at home and using their Macs and iPhones and Apple TVs to access stuff.

Here's what Luca Maestri, Apple CFO, had to say:

"App Store revenue grew by strong double digits, thanks to robust customer demand for both in-app purchases and subscriptions. Our third-party subscription business grew across multiple categories and increased over 30 percent year-over-year, reaching a new all-time high. Our first-party subscription services also continued to perform very well. Apple Music and cloud services both set all-time revenue records and Apple Care set a March quarter record. Paid subscriptions for all 3 of these services were up strong double digits."

#5: What about the foreseeable future?

Here's what Maestri had to say:

"On iPhone and Wearables, we expect the year-over-year revenue performance to worsen in the June quarter relative to the March quarter. On iPad and Mac, we expect the year-over-year revenue performance to improve in the June quarter. On Services, we are seeing two distinct trends: First, customers are actively engaging with our ecosystem and digital services, and we believe the very strong recent performance in the App Store, video, Music and cloud services will continue throughout the June quarter; second, due to the overall reduced level of economic activity due to the lockdowns around the world, services like Apple Care and advertising have been impacted."

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