iPhone sales fell 20% ahead of iPhone 12 launch, but Apple isn't worried
Company executives expect dramatic increases in sales this holiday season. But questions remain about the impact the coronavirus might have.
Now that the iPhone 12 is out, the next question is how well it'll do.
Apple's iPhone sales plummeted 20% as consumers awaited the release of its iPhone 12 amid the continued spread of the coronavirus pandemic, which has upended lives, disrupted business and slowed manufacturing across the globe. But Apple executives said they aren't terribly worried about it.
That's primarily thanks to Apple's delay releasing the iPhone 12, creating a fluke in financial reporting that artificially made the company's sales look lower than they otherwise would. Last year's number included about a week of newly announced iPhone sales. This year's number didn't. As a result, Apple tallied $26.4 billion in older iPhone sales, down more than a fifth from the same time a year ago.
Instead of lingering on those numbers, though, Apple executives painted a rosy picture of the holiday shopping season, saying the company expects sales of its iPads , Macs, Apple Watches and other products to jump at least 10%. And the company was also upbeat about iPhone sales, which it predicted would see sales rise as well.
A primary reason, Apple CEO Tim Cook said, is new wireless technology.
"We've got a once in a decade opportunity with 5G ," he told analysts during a conference call Thursday, talking about the next-generation wireless service that promises faster and more reliable downloads. "There's a lot of excitement around 5G."
To push that point, Apple said that aside from the iPhone, the company's sales rose 25% from the same time a year ago, despite supply constraints amid the ongoing coronavirus crisis.
"Back in April, I said we were in the most challenging environment in which Apple as a company has ever operated. That atmosphere of uncertainty -- of resolve, of making difficult calls with limited information -- has not only come to define Apple's year, but each of our lives," Cook said. "When we first began to grapple with COVID-19, I said there are worse things for a company whose business is innovation than having to periodically do just about everything in an entirely new way."
All told, Apple said it notched profits of $12.7 billion, down about 7% from the same last year. That translates to 73 cents per share in profit, off $64.7 billion in overall revenue, which itself was up slightly from the $64 billion reported last year. It was also enough to beat average analyst estimates, which were 70 cents per share in profits on $63.7 billion in revenue, according to surveys published by Yahoo Finance.
Investors responded by pushing Apple's stock down more than 5% to $109.20 after it closed regular trading up 3.7% to $115.32 per share. It's risen by about half so far this year.
Challenging year
Apple still faces a myriad of competitors, whose typically lower prices make them particularly appealing during economic uncertainty.
Apple's latest financial disclosures are just the latest sign of how the coronavirus pandemic has impacted the world economy. In the US, overall smartphone sales grew slightly in the same period after falling double digits earlier this year, according to Counterpoint Research. Apple derives most of its revenue from sales of its iPhone family of products.
Broadly, the US is now preparing for the presidential election next week, during which Americans will choose their leader to manage the coronavirus and economic troubles that have followed its spread. The US GDP, a measure of America's economy, swung wildly over the past few months, making its worst quarterly drop on record earlier this year before rising more than 33% between July and September. All told, it fell 3.5% from the same time a year ago, before COVID-19. Analysts warn that more coronavirus-related lockdowns may set the economy back further.
As the US has grappled with rising coronavirus cases across the country, the US government has chosen not to enact further stimulus efforts after passing a series of bills earlier this year. That's led to a souring mood on Wall Street, where the Dow Jones Industrial Average has fallen about 6% in just this week.
That raises questions about how enthusiastically people will participate in holiday shopping this year, and whether they'll be willing to shell out for one of Apple's iPhone 12 models, which start at $799. The iPhone 12 Pro Max and iPhone 12 Mini are slated to launch early next month.
There's also uncertainty about whether Apple itself can produce enough supplies to keep up with any potential demand. Though Apple's considered one of the best supply chain companies in the world, it warned earlier this year iPhone sales would slow because of manufacturing issues in China. The company also noted "supply constraints" during its call with analysts on Thursday.
Still huge
While iPhone sales numbers were garbled by the iPhone 12's delayed launch, Apple was upbeat about other parts of its business. Mac sales grew nearly 30% to $9 billion, and iPad sales grew nearly 46% to $6.8 billion. The company's "wearables, home and accessories" business, which includes the Apple Watch, AirPods and HomePod , grew 20% to nearly $7.9 billion. Its services business, including Apple Music and Apple TV Plus , rose more than 16%, the slowest growth among the company's non-iPhone divisions.
The Americas continue to be Apple's biggest market, rising more than 4% to nearly $30.7 billion. Its weakest market was in China, which saw a sales decline of 29%, which Apple attributed to the iPhone's delay. "Given the initial data points that we see on iPhone 12 and iPhone 12 Pro ," Cook said, "I would tell you that we're confident that we will grow this quarter in China."
"We are very bullish," he added.
Bet on 5G
Apple made a big deal about its support for 5G when announcing the iPhone 12.
Despite the economic uncertainty around the world, Apple watchers say the iPhone 12 could represent one of the company's most successful products in years.
Analysts routinely discuss Apple's introduction of upgraded 5G wireless networking features, which promise faster and more reliable download speeds, will kick off a "super cycle" of purchases not seen since 2014. Back then, the then-new iPhone 6 helped Apple's holiday sales tally rise to 74.5 million units, up more than 45% from the 51 million it sold during the same period in 2013. Apple's holiday iPhone sales haven't budged much ever since.
Without giving details or official "estimates," Apple executives repeatedly told analysts they expect the company to perform well during the holiday shopping season. That includes increased iPhone revenue and double-digit growth in its other products and services. "We're off to a great start," Apple CFO Luca Maestri said during the conference call with analysts Thursday.
The holiday shopping season will also include the launch of the company's new Apple One service, which offers some of the company's services like its music and new fitness subscriptions, in a discounted bundle starting at $15 per month. Cook said Apple One will be made available starting Friday, and its fitness service will arrive before the year's end.
One of Apple's biggest challenges, other than the pandemic in general, has been building enough iPhones for people who want to buy them.
"How long we will be supply constrained, it's hard to predict," Cook said. "We're working really, really hard to remedy those as quickly as we can but at this point. I can't estimate when when we'll be out of that."