10-QPeriod: Q2 FY2020

Apple Inc. Quarterly Report for Q2 Ended Mar 28, 2020

Filed May 1, 2020For Securities:AAPL

Summary

Apple Inc.'s Q2 2020 filing (period ending March 28, 2020) reveals a modest 1% increase in total net sales to $58.3 billion, largely driven by strong growth in Services and Wearables, Home, and Accessories. However, this was partially offset by a decline in iPhone sales, signaling an early impact from the emerging COVID-19 pandemic. Despite macroeconomic headwinds, the company demonstrated resilience, with robust cash generation from operations and a significant commitment to returning capital to shareholders through substantial share repurchases and dividends. The filing highlights Apple's continued investment in research and development, which increased year-over-year, indicating a focus on future innovation. The company also faced some headwinds, including supply chain disruptions in China early in the quarter and subsequent demand weakness outside of China as the pandemic spread globally. Despite these challenges, Apple's diversified revenue streams, particularly the high-margin Services segment, and its strong financial position provide a solid foundation for navigating the uncertain economic environment.

Financial Highlights

55 data points
Beta

Revenue

$58.31B

38.4% Gross Margin

Net Income

$11.25B

19.3% Net Margin

EPS (Diluted)

$0.64

Total Assets

$320.40B

Cash & Equivalents

$40.17B

Free Cash Flow

$11.46B

Financial Statements
Beta
Revenue$58.31B
Cost of Revenue$35.94B
Gross Profit$22.37B
R&D Expenses$4.57B
SG&A Expenses$4.95B
Operating Expenses$9.52B
Operating Income$12.85B
Interest Expense$757.00M
Net Income$11.25B
EPS (Basic)$0.64
EPS (Diluted)$0.64
Shares Outstanding (Basic)17.44B
Shares Outstanding (Diluted)17.62B

Key Highlights

  • 1Total net sales increased 1% year-over-year to $58.3 billion, driven by Services (+17%) and Wearables, Home, and Accessories (+23%).
  • 2iPhone sales declined 7% year-over-year to $29.0 billion, impacted by the early stages of the COVID-19 pandemic.
  • 3Services revenue continues to be a significant growth driver, up 17% to $13.3 billion, demonstrating the ecosystem's strength.
  • 4Operating income saw a slight decrease of 4% to $12.9 billion, reflecting increased operating expenses.
  • 5The company repurchased $18.5 billion of common stock and paid $3.4 billion in dividends during the quarter, underscoring its commitment to capital return.
  • 6Research and Development expenses increased by 16% to $4.6 billion, signaling continued investment in future products and services.
  • 7The company acknowledged the significant and ongoing adverse impacts of the COVID-19 pandemic on its business, supply chain, and demand.

Frequently Asked Questions

The COVID-19 pandemic began impacting Apple's business in this quarter, leading to supply chain disruptions in China, temporary retail store closures, and weakened demand outside of China towards the end of the quarter. This resulted in a decrease in iPhone sales and a broader impact on product demand, although Services and Wearables, Home, and Accessories showed resilience.

Apple's Services segment continues to demonstrate strong growth, with net sales increasing by 17% year-over-year to $13.3 billion for the quarter. This growth was primarily driven by higher net sales from the App Store, licensing, and Cloud Services, highlighting the increasing importance and profitability of Apple's services ecosystem.

Apple returned significant capital to shareholders during the quarter. The company repurchased $18.5 billion of its common stock and paid $3.4 billion in dividends. Additionally, on April 30, 2020, Apple announced an increase in its share repurchase authorization by $50 billion and a raise in its quarterly cash dividend.

The full extent of the COVID-19 pandemic's impact remains uncertain and depends on various external factors. However, Apple stated that its existing cash, cash equivalents, and marketable securities are expected to be sufficient to meet its liquidity needs over the next 12 months. The company is closely monitoring the situation and adapting its operations.