By Tim Higgins
Apple Inc. benefited from a significant uptick in sales of
laptops and iPads due to the pandemic, even as quarterly iPhone
sales fell from a year earlier after a delay in the launch of the
company's flagship new smartphone.
Shares fell by more than 5% in after-hours trading after the
Cupertino, Calif.-company reported Thursday that iPhone revenue
fell 21% in the quarter that ended in September, worse than
analysts had expected. Apple executives linked a 29% drop in China
sales to the delay in bringing out the iPhone 12 to October. Apple
usually begins selling its newest phones in September.
The tech giant this year has largely benefited from demand for
digital services, computers and other devices as workers and
students around the world have stayed home due to the spread of
Covid-19. The fiscal fourth quarter continued that trend.
Sales of computers, iPads and smartwatches helped buoy the
company in the three-month period, with total revenue rising 1%.
Wall Street analysts surveyed by FactSet, on average, expected
revenue to fall for the period. Revenue excluding iPhone sales rose
25% compared with a year ago, with Mac computers reaching a record
of $9 billion.
Profit fell to $12.7 billion, or 73 cents a share, from $13.7
billion, or 76 cents a year earlier, the company said. The results
beat analyst expectations for profit of 71 cents a share.
The lackluster iPhone sales through September are set to add
pressure on Apple to deliver outsize revenue in this holiday
quarter -- with fewer weeks than normal because some versions of
the iPhone 12 aren't even available until next month. Investor
expectations for significant growth in iPhone revenue have helped
push the company's market value to over $2 trillion.
"We're really off to a great start," Chief Financial Officer
Luca Maestri said in an interview Thursday. Earlier this month, the
company unveiled four new iPhone 12 models, all of which have
capabilities for 5G. "Everything that we've seen so far,
particularly with the iPhone, but also all the other product
categories is very, very positive."
The results helped Apple conclude its fiscal year with an
increase in revenue and profits after both figures fell in the
previous 12-month period. Apple finished its fiscal year with
$274.5 billion in revenue, a 5.5% gain from 2019.
For a third consecutive quarter, Apple didn't provide detailed
guidance for the months ahead, a tacit acknowledgment of the
uncertainty it faces as the anniversary of the first known Covid-19
case approaches. The company said iPhone revenue is expected to
rise in the current quarter, while other products should see double
Wall Street expectations for the final three months of the
fiscal year withered earlier this year as the coronavirus and its
disruption began to spread around the world.
Because of the pandemic, Apple pushed back iPhone 12 production,
resulting in a cascade of delays for the flagship product's
unveiling earlier this month, weeks later than it would normally
debut during a typical year.
Before the middle of September, Apple was seeing "double-digit"
sales growth in iPhones, Mr. Maestri said in the interview. Then
the company hit the period of the quarter when sales would be
compared against last year's iPhone launch.
Investors are betting the new phone with 5G cellular
connectivity will be the catalyst for a massive surge in sales,
potentially reaching the previous record of 231 million units in
As unit sales have fallen from that peak, Chief Executive Tim
Cook has shifted the company's emphasis to selling higher-priced
phones and bolstering its services business, such as video and
fitness apps, for use on the more than 900 million iPhones
Before the pandemic, the bright spot of Apple's business had
been its services unit, which had more than doubled in fiscal 2019
compared with five years earlier. It rose 16% in the most recent
quarter to $14.5 billion.
That business is under pressure over claims that Apple uses its
power over its digital ecosystem to hurt rivals and benefit itself
-- claims Apple has strongly denied.
In recent weeks, a House subcommittee reviewing big tech
companies accused Apple of using monopolistic power, and "Fortnite"
video game-maker Epic Games Inc. has sued over the fees Apple
collects through its App Store. A lawsuit by the Justice Department
against Alphabet Inc.'s Google has put Apple's multibillion-dollar
deal to favor the search engine under scrutiny.
Asked about the lawsuit, Mr. Cook told analysts there is a lot
of potential for its service business. "I have no idea how the DOJ
suit will go, but I think it's a long way from a conclusion on it,"
The pandemic has simply highlighted the depth of Apple's
strength. Sales of iPad tablets and Mac computers have seen new
life. Revenue for the product lines rose 46% and 29%, respectively,
in the fourth quarter from a year earlier.
"We had a phenomenal back-to-school season," Mr. Maestri said.
"But even today, we are supply constrained on both iPad and
Write to Tim Higgins at Tim.Higgins@WSJ.com
(END) Dow Jones Newswires
October 29, 2020 19:21 ET (23:21 GMT)
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