ii view: Apple sales flat but shares still in demand

Record sales of services such as music are set against declining iPhone sales.

Second-quarter results to 28 March 2020

• Revenue up 0.5% to $58.3 billion
• Net income down 3% to $11.25 billion
• Earnings per share up 4% to $2.55
• Dividend up 6% from Q1 2020 to $0.82 per share 

Chief executive Tim Cook commented: 

“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.

“In this difficult environment, our users are depending on Apple products in renewed ways to stay connected, informed, creative, and productive.”

ii round-up:

In a hard-fought quarter and with China sales first affected by the corona crisis, already accounting for over 15% of total group sales, iPhone maker Apple (NASDAQ:AAPL) still managed to beat Wall Street estimates.

Sales up under 1% to $58.3 billion exceeded estimates below $55 billion, buoyed by both a 22% jump in wearable sales, such as its air pods, and a 16% improvement in Service revenues.

Population lockdowns helped drive a new record in Service sales as consumers turned to products such as Apple music. 

iPhone sales, still its biggest seller at just under half of total group sales, fell by almost 7%. China sales fell 7%, with demand in both the Americas and Japan also marginally down. Many mobile phone store outlets such as Verizon's (NYSE:VZ) in the US and Dixons Carphone (LSE:DC.) in the UK have been forced to close under Covid-19 shutdowns. 

CEO Tim Cook commented in an interview that “it was impossible to forecast overall results for the current quarter given the uncertainty created by the virus.”

Apple shares declined marginally in after-hours US trading, mirroring price action for fellow tech giant Amazon (NASDAQ:AMZN) – also reporting results. Apple shares are little changed year-to-date, although rose by more than 80% during 2019. 

ii view:

The success of the company’s iPhone is arguably the product success of the millennium. In 2018, Apple sold over 215 million iPhones worldwide, up from under 2 million in 2007 when it was launched.  

A record base of active installed devices is allowing its Services business, which includes Apple music, to blossom. Services now account for around 23% of overall sales, up from just under 20% this time last year. The launch of its AirPods Pro and a push to diversify its product sales also appears to be showing promise.  

Now, Covid-19 is offering opportunities and difficulties. Consumer reliance on technology has increased under work from home conditions, although opportunity to test and upgrade devices at local stores has diminished. 

For investors, concerns over what might take up the slack from slowing iPhone device sales persists. Uncertainty regarding Covid-19 and its potential to further sour US China relations also needs to be considered. On the upside, Apple’s cash balance and recent change towards funnelling cash back to shareholders offers a clear positive.

Positives:

• Diverse geographical markets
• Added $50 billion to existing share buyback programme
• Over $190 billion of cash & cash equivalents held

Negatives:

• Sales of its iPhone, its key product, again fell
• China 2019 sales fell by 16% compared to 2018
• Technology giants suffering increased global government scrutiny

The average rating of stock market analysts:

Buy