Apple Reports Double Digit Growth in Products and Services in Q3 FY2020

Company remains strong despite challenging times.

Last week, Apple reported double digit growth in both products and services categories, along with growth across geographic regions for their third quarter of fiscal year 2020. In addition, Apple reported revenue of $59.7 billion, an 11% increase year-over-year. For the period ended June 27, 2020, Apple had $46.5 billion in products revenue, a 9.8% increase, and $13.2 billion in services revenue, a 14.8% increase. Services revenue includes Apple subscription services such as Apple Music, Apple News+, Apple TV+ and Apple Arcade.

“In an uncertain environment, Apple saw a quarter of historic results, demonstrating the important role our products play in our customers’ lives. We set a June quarter record with revenue of $59.7 billion, up 11% from a year ago. Both products and services set June quarter records and grew double digits, and revenue grew in each of our geographic segments, reflecting the broad base of this success. As always and especially in times of real adversity, what makes us proud as a company is not merely what we did but how we did it,” said Tim Cook, Apple CEO, on the company’s July 30 earnings call.

Financial highlights

Other financial highlights for the quarter include the following:

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  • The company had its highest sales of $27.0 billion from customers in the Americas.
  • In the products category, iPhone had the highest net sales at $26.4 billion, a 2% increase, followed by Mac at $7.1 billion, iPad at $6.6 billion, and wearables, home and accessories at $6.5 billion.
  • Apple had operating income of $13.1 billion, and total operating expenses of $9.6 billion.
  • Net income of $11.3 billion, or $2.58 per diluted share, compared to $10.0 billion, or $2.18 per diluted share, for the same period last year.
  • The company declared a cash dividend of $0.82 per share of common stock payable on August 13 to shareholders of record as of August 10.

“Our June quarter performance was strong evidence of Apple’s ability to innovate and execute during challenging times,” said Luca Maestri, Apple’s CFO, in a July 30 news release. “The record business results drove our active installed base of devices to an all-time high in all of our geographic segments and all major product categories. We grew EPS by 18 percent and generated operating cash flow of $16.3 billion during the quarter, a June quarter record for both metrics.”

Operational highlights

Operational highlights for the quarter include the following:

  • Despite supply contracts on iPad and Mac products, the company saw strong double-digit growth.
  • Wearables growth slowed down, but still grew in double-digits, setting a record for a non-holiday quarter.
  • Advertising and AppleCare were affected by the COVID-19 pandemic.
  • Digital services – including Apple subscription services – set revenue records in the App Store, Apple Music, video and cloud services, as well as increased engagement on iMessage, Siri and FaceTime.
  • The company launched Apple News Today, a daily audio news briefing, and Greyhound, a movie starring Tom Hanks.
  • Apple held its annual Worldwide Developers Conference virtually, producing more than 72 hours of video content and attracting more than 22 million viewers.
  • During the quarter, Apple had to reclose many of its retail stores in the U.S., and the company has been encouraging its retail staff to work remotely when possible.
  • Last week, we reported that Apple won a $15.4 billion tax appeal against the EU Commission.

Investments in communities

Like Amazon, Apple used its earnings call to share its commitment to diversity and inclusion, education, housing and the environment. For example, the company committed $100 million to launch the Apple Racial Equity and Justice Initiative, and they added 10 more historically black college and university regional coding centers. In terms of housing, Apple allocated $400 million of a total $2.5 billion affordable housing commitment to new housing construction, homebuyer assistance programs, and support for the homeless in Silicon Valley. The company said it intended to be fully carbon-neutral by 2030.

“There are times when things seem to move slowly when needed progress, economic or social, seems bogged down, when the instinct to turn away from the horizon and hold on to what you’ve got feels inescapable. And then there are times like this when people of goodwill step forward, when progress unmoors itself, when the insistence of hope forces something new. This is an immensely challenging moment. COVID-19 is still devastating many places, and we have work left to do to care for the health and well-being of the communities in which all of us live and work,” said Cook. “But no community of people, whether a company or a country, can afford to miss this call when it comes. At Apple, we never have and we don’t intend to start now.”

No guidance provided for Q4 FY2020

Chief Financial Officer Luca Maestri said that due to the uncertainty surrounding the coronavirus pandemic, the company would not issue revenue and margin guidance for the fourth quarter of fiscal year 2020. He did say, however, that he expects strong results from the products category and similar results for the services category except for AppleCare.

Stock spikes

Apple investors seemed pleased by the results of Apple’s quarterly report. On July 29, the day before financials were released, Apple’s stock was valued at $380.16 per share. As of 4 p.m. EDT July 31, Apple stock was valued at $425.04, an 11.8% increase. ­

Apple stock spikes after Q3 FY2020 financial report.

Insider Take

Due to COVID-19, it is hard for any company to predict future economic results, but Apple has loyal customers and an array of relatively new service services to attract new ones. Financially speaking, Apple will likely similar results in the fourth quarter, compared to the third quarter. However, there are still antitrust claims in the United States and Europe that could come into play as the company’s fiscal year winds down. Just last week, Cook testified before the House Judiciary Antitrust Subcommittee as part of the committee’s ongoing investigation of competition in the digital marketplace. The results from that investigation are expected by year-end, so that is not likely to have an immediate financial impact on Apple.