IPhones Rebounded, but Next Lineup Delayed; Wearables Growth Slows

Apple’s record fiscal Q3 revenue of $59.7 billion, up 11% year on year, was due to a “strong iPhone SE launch,” continued economic stimulus and lifting of shelter-in-place restrictions around the world, said CEO Tim Cook on Thursday evening’s earnings call. Growth spanned all regions in the quarter ended June 27.

IPhone revenue returned to growth -- up 2% to $26.4 billion, 11% shipment growth to 26.4 million -- but the next-generation iPhone lineup will be delayed, said Chief Financial Officer Luca Maestri. Last year, Apple began selling the 11 Series in late September. This year, “we project supply to be available a few weeks later,” said Maestri. Other product categories are expected to have “strong year-over-year performance,” he said.

The iPhone SE had a higher number of switchers than in the previous year, and it also seemed to appeal to customers holding on to their device, waiting for a smaller form factor, Cook said. IPhone 11 is still Apple’s most popular smartphone, “but iPhone SE definitely helped our results.” Those trends continued into the current quarter, he said.

Though wearables shipments grew in the June quarter to 6.4 million from 5.5 million, growth slowed, which Cook attributed to store closures during the pandemic. Apple Watch customers like to shop for bands when making a purchase, he said.

The iPad, with 31% growth to $6.6 billion, had its strongest quarter in eight years; Mac had 22% growth to $7.1 billion. The strong growth for both was due to shelter-in-place mandates, despite supply constraints, said executives.

The company was six months ahead of schedule on its goal to double its 2016 services revenue by the end of calendar 2020. Services set a June quarter record at $13.2 billion, up 15%, as the company marked highs in App Store, Music, video and cloud services, said Maestri. Apple’s paid subscriptions grew 35 million in the quarter, to 550 million, and are on target to hit 600 million paid subs by end of December.

To help customers navigate current economic uncertainties, Apple is offering interest-free financing in stores with payments, along with its trade-in program, which acts as a subsidy, Cook said. The two combine to make iPhones “super affordable," he said. Apple expects a strong back-to-school season and has “some optimism” about the December quarter. “I think we need to see a vaccine or therapeutic or both, and there's some optimism around that in that particular time frame,” Cook said, adding he doesn’t have information that’s not publicly available. “I think that would boost consumer confidence quite a bit if it began to happen.”

Homegrown Apple processors are still on track to start arriving in Macs before year-end, said Cook. Responding in Q&A to whether the company would look to monetize the silicon by making itavailable to other OEMs, Cook stopped short of making a “forever comment” but said that’s not a priority: “We're a product company and we love making the whole thing, and because we can own the user experience in that way and with the goal of delighting the user.” With Apple chips, “we can envision some products … that we couldn't achieve otherwise.”

Due to uncertainties about the pandemic , Apple took the same course it did on its March quarter call, not issuing revenue guidance but giving insights on the upcoming quarter. It expects iPhone performance to continue, including the “strong customer response” to iPhone SE, said Maestri. Services trends will continue, except for AppleCare, which expanded distribution “significantly” in last year’s September quarter. The stock closed 10.5% higher Friday at $425.04.