Apple logo on side of Apple store

Apple Services Revenue Grows to Record Levels

Meanwhile, the European Commission takes issue with Apple’s dominant market position for mobile wallets in the European Union.

Apple reported that its services revenue hit a new all-time high in the second quarter of fiscal year 2022. For the period ended March 26, 2022, services revenue was $19.8 billion, compared to $16.9 billion for the same period in fiscal year 2021 and $19.5 billion in the first quarter of this year. Services revenue, which includes Apple’s subscription services such as Apple Music, Apple Business Essentials, Apple Arcade, Apple Fitness+ and others, now represents 20.4% of total net sales, compared to 15.7% in the first quarter of the year.

The company also reported record revenue for the quarter of $97.3 billion, a 9% increase year-over-year. Net income for the period was $25.0 billion, or $1.52 per diluted share, compared to $23.6 billion, or $1.40 per diluted share, in the prior-year period. While a record for the second quarter, revenue was down from the first quarter when Apple reported net sales of $123.9 billion.

Apple CEO Tim Cook commented on the company’s strong quarter.

“This quarter’s record results are a testament to Apple’s relentless focus on innovation and our ability to create the best products and services in the world. We are delighted to see the strong customer response to our new products, as well as the progress we’re making to become carbon neutral across our supply chain and our products by 2030. We are committed, as ever, to being a force for good in the world — both in what we create and what we leave behind,” said Cook in an April 28, 2022 news release.

Second-quarter highlights

The company also reported the following highlights:

  • Net sales were comprised of product sales of $77.5 billion and services revenue of $19.8 billion, totaling $97.3 billion. Total revenue for the prior-year period was $89.6 billion.
  • The Americas reported the largest segment of revenue at $40.9 billion, followed by Europe at $23.3 billion, Greater China at $18.3 billion, Japan at $7.7 billion and the rest of Asia Pacific at $7.0 billion.*
  • Total operating expenses for the quarter were $12.6 billion.
  • Operating cash flow was $28 billion.
  • Apple’s board of directors declared a cash dividend of $0.23 per share, a 5% increase. It will be paid to shareholders of record as of May 9, 2022.

Net sales by category

iPhone sales were the highest of Apple’s revenue categories, followed by services revenue, Mac, iPad and Wearables, Home and Accessories.*

iPhone$50.6 billion
Mac$10.4 billion
iPad$7.6 billion
Wearables, Home and Accessories$8.8 billion
Services revenue$19.8 billion

*Slight differences in totals are due to rounding.

CFO comments

Luca Maestri, chief financial officer for Apple, also commented on the quarterly results.

“We are very pleased with our record business results for the March quarter, as we set an all-time revenue record for Services and March quarter revenue records for iPhone, Mac, and Wearables, Home and Accessories. Continued strong customer demand for our products helped us achieve an all-time high for our installed base of active devices,” said Maestri. “Our strong operating performance generated over $28 billion in operating cash flow and allowed us to return nearly $27 billion to our shareholders during the quarter.”

Third-quarter outlook

Maestri noted on the earnings call that the company is not providing revenue guidance for the third quarter.

“Given the continued uncertainty around the world in the near term, we are not providing revenue guidance. But we are sharing some directional insights based on the assumption that the COVID-related impacts to our business do not worsen from what we are projecting today for the current quarter,” Maestri said.

Among the factors that will impact Apple in the near term are supply constraints caused by disruptions related to COVID, industrywide silicon shortages, the foreign exchange rate, and the pausing of sales in Russia. The company did provide this guidance for the quarter:

  • Gross margin between 42% and 43%
  • Operating expenses between $12.7 billion and $12.9 billion
  • Tax rate of approximately 16%

European Commission expresses concerns over Apple Pay

European Union flag and gavel on black background
Source: Envato Elements

In other Apple news, yesterday, the European Commission notified Apple through a Statement of Objections that it believes the company abused its dominant market position for mobile wallets on iOS devices. The company allegedly limited access to standard “tap and go” technology for contactless payments with mobile devices in stores. The European Commission believes that Apple prevented mobile wallet developers from accessing the necessary technology, so that Apple Pay would become the default or preferred payment solution for digital wallets on iOS devices.

“Mobile payments play a rapidly growing role in our digital economy. It is important for the integration of European Payments markets that consumers benefit from a competitive and innovative payments landscape. We have indications that Apple restricted third-party access to key technology necessary to develop rival mobile wallet solutions on Apple’s devices. In our Statement of Objections, we preliminarily found that Apple may have restricted competition, to the benefit of its own solution Apple Pay. If confirmed, such a conduct would be illegal under our competition rules,” said executive vice-president Margrethe Vestager for the European Commission in a May 2, 2022 statement.

Insider Take

Apple had a strong second quarter, but it wasn’t as solid as the first quarter which included the 2021 holiday season. While revenue including services revenue still grew, overall net sales were down from the first quarter. Like Amazon who reported their quarterly results the same day, Apple has had many global economic challenges to manage, including inflation, supply chain issues and the war in Ukraine. Apple will navigate those challenges and growth may slow, but continue antitrust scrutiny from the US and EU could also have an impact on their bottom line, though those concerns are most likely long term problems and won’t come to light in the third quarter.

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