Notes of interest from Apple’s Q1 2021 earnings report and conference call

Apple on Wednesday published its first fiscal quarter of 2021 results, reporting quarterly revenue above $100 billion for the first time. Here are some notes of interest from the report and call, including remarks from Apple CEO Tim Cook and CFO Luca Maestri on the particulars of both.

Apple first quarter earnings

Apple reported record-breaking revenue of $111.4 billion, an increase of 21% from the prior year. It also posted quarterly earnings per diluted share of $1.68, up 35%. International sales accounted for 65% of the revenue during the quarter.

“This quarter for Apple wouldn’t have been possible without the tireless and innovative work of every Apple team member worldwide,” Apple CEO Tim Cook said. “We’re gratified by the enthusiastic customer response to the unmatched line of cutting-edge products that we delivered across a historic holiday season. We are also focused on how we can help the communities we’re a part of build back strongly and equitably, through efforts like our Racial Equity and Justice Initiative as well as our multi-year commitment to invest $350 billion throughout the United States.”

Credit: AppleInsider

Credit: AppleInsider

“Our December quarter business performance was fueled by double-digit growth in each product category, which drove all-time revenue records in each of our geographic segments and an all-time high for our installed base of active devices,” said Luca Maestri, Apple CFO. “These results helped us generate record operating cash flow of $38.8 billion. We also returned over $30 billion to shareholders during the quarter as we maintain our target of reaching a net cash neutral position over time.”

Broken down by segment, Apple reported quarterly iPhone revenue of $65.59 billion in revenue, Mac revenue of $8.67 billion, and iPad revenue of $8.43 billion. Wearables, Home, and Accessories brought in $12.9 billion, while Services clocked in with $15.7 billion.

Across most of its product lineup, Apple beat both Wall Street consensus and analyst expectations during the quarter.

Apple’s Board of Directors has also declared a cash dividend of $0.205 per share of the company’s stocks, payable on Feb. 11, 2021 to shareholders of record as of close of business on Feb. 8, 2021.

Participating in Wednesday’s call were Apple Chief Executive Tim Cook and Chief Financial Officer Luca Maestri.

Highlights from the earnings report and conference call

  • This quarter marks Apple’s first with revenue above $100 billion.
  • Apple appears to have beaten most analyst expectations during this quarter -MP
  • This result caps off the most challenging year any of us can remember,” Cook said
  • Tim Cook says Apple has seen double-digit growth across its entire product lineup.
  • Apple has “hit a new high watermark” for installed devices with 1.6 billion devices worldwide. iPhone grew by 17% year-over-year, driven by strong iPhone 12 demand.
  • iPad and Mac grew by 41% and 21% respectively. Demand has been “very strong” for the iPad Air and M1-equipped Mac devices.
  • The Wearables, Home, and Accessories segment grew by 30%. Each subgroup of the broader segment set records during the quarter.
  • Cook speaks a bit about new Services offerings, including Apple Fitness+ and Apple One.
  • On International Privacy Day, the Apple CEO says: “We set new standards to users right to privacy, not just for our products, but to be the ripple in the pond to move the industry forward.”
  • Now, Cook is talking about its racial equity initiatives, including the recently announced Propel Center and other endeavors.
  • Apple staffers have donated more than $600 million and volunteered more than 1.6 million hours since it launched the Apple Giving Program.
  • Cook has passed the call to Maestri.
  • Revenues increased nearly $20 billion from the year-ago quarter.
  • iPhone, Wearables, Home and Accessories, and Services reached all-time high. Mac set a new December record
  • Apple established new records across its Services categories and in most geographies.
  • Gross margins clocked in at 39.8%, up 160 basis points. Maestri attributes it to better sales and a higher mix. Product gross margin was 31.5%, while Services was 68.4%
  • iPhone revenue is up 17% year-over-year. The iPhone has reached an all-time high installed base of 1 billion devices
  • Apple touts research indicating iPhone 12 customer satisfaction is 98% for the iPhone 12 lineup.
  • Maestri says new Services like Fitness+ and Apple TV+ are contributing to Services growth
  • Installed base for Services reached all-time high for every category. Apple has exceeded 600 million paid subscriptions before 2020 ended. Now has more than 620 million, up 140 million from a year ago
  • Payment services have expanded with 90% of stores now accepting Apple Pay
  • About 75% of Apple Watch customers are first-time buyers, contributing to the product’s reach. Wearables is now the size of a Fortune 120 company.
  • Mac set a new record in the December quarter with strong double-digit growth across geographies. Strong demand for M1 Mac
  • Performance of the iPad is up 41% and, like the Mac, is also strong in every geographic segment. Japan set new records.
  • Apple says customer satisfaction is 93% for Mac and 94% for iPad. Half of customers were new to the products
  • On cash position: Apple ended its quarter with $196 billion in cash along with marketable securities
  • Apple retired $1 billion in maturing debt. Total debt of $112 billion.
  • Apple says it has $84 billion in net cash. Has returned $30 billion to shareholders. $24 billion through repurchasing of 200 million Apple shares.
  • Apple will not be guiding to a specific revenue range for the March quarter, citing coronavirus concerns.
  • Says it can provide directional insights provided COVID doesn’t get worse. Maestri says Apple believes growth will accelerate on a year-over-year basis and in aggregate following typical seasonality.
  • Katy Huberty, Morgan Stanley: “Can you talk about whether you recognize the full impact of weaker dollars given typical currency hedges and how are you thinking about headwinds and tailwinds on GM?”
  • Luca says “GM was strong, better than anticipated.” Adds that at current rates, Apple expects some level of benefit around 60 to 70 basis points in the March quarter.”
  • Huberty: “Can you talk about the framework that you use internally to evaluate new markets and what you believe will determine your success as you look to enter new markets?”
  • Cook: “The framework that we use is around, ‘is this a product that we would want to use?’ That’s a pretty high bar.”
  • Question: How does a strong iPhone mix change your view on March quarter.
  • “iPhone was one of the major factors why we exceeded internal expectations.”
  • Asked about the different between switcher and upgrader activity, Cook says Apple is seeing increases in both. Notes that it saw the largest number of upgraders ever in a quarter.
  • Shannon Cross, Cross Research
  • Q: How “back to normal” is the Chinese market?
  • “China was more than an iPhone story.” Says that iPhone did extremely well, but added that iPad and Mac did, too. Adds that China is well into the “recovery stage” of the pandemic