Apple: Coronavirus hurt Q2 2020 earnings, but teams rose to challenges

Following today’s release of Apple earnings for the second fiscal quarter of 2020, CEO Tim Cook and CFO Luca Maestri held a conference call with financial analysts to discuss the results, which — as disclosed by the company in advance — missed initial guidance offered before the U.S. outbreak of COVID-19 cases but just barely eked out a revenue increase over the same quarter in 2019.

Cook began his remarks by discussing the impacts of the coronavirus on Apple, characterizing the situation as massively challenging — enough to make the quarter short of where it could have been financially but one that he couldn’t have been prouder of, thanks to his employees’ resilience. Early in the quarter, Apple believed it was on track to hit the high end of its estimates and achieve a new revenue record. But that shifted as the outbreak became a pandemic, disrupting work and life across the U.S. and other countries.

But Cook said Apple employees rose to the occasion, simultaneously turning out next-generation devices and sourcing over 30 million masks for frontline medical workers. The company is now producing 1 million of its own protective shields each week and continues to make donations to global and U.S. coronavirus relief funds. It also elevated reliable COVID-19 news within Apple News, produced content on the topic with Oprah and Lady Gaga, and developed both a symptom-checking website that has seen 2 million users and an app that’s had 3 million downloads. He also noted Apple’s cooperation with Google on an exposure notification system, which resulted this week in updates to the iOS and Android operating systems.

Despite the outbreak’s impact on the company’s global supply chain, Cook said Apple’s manufacturing was effectively back on track as of the end of March. Maestri noted that the company encountered some temporary shortages but said the operations team and manufacturing partners “put forth an extraordinary effort” to return to normalcy.

On the consumer side, shoppers effectively moved their Apple purchases straight from brick-and-mortar stores to the company’s website, and retail had a quarterly record during this quarter despite the physical store closures — an online purchasing trend Cook isn’t sure will continue once people are able to go out in public. For now, with device users stuck at home, the company has unsurprisingly seen record daily use of its FaceTime and iMessage services during the quarter.

In remarks to Bloomberg coinciding with today’s earnings release, Cook said the company will begin reopening roughly 20 total stores across Austria and Australia within two weeks, as well as a few U.S. stores during the same period. The company’s campus in Cupertino, California will not reopen until early June at the earliest.

While Apple isn’t providing broad guidance for the third fiscal quarter, Maestri suggested that currency challenges and overall market weakness will lead to revenue declines for the iPhone and wearables and potentially impact some services revenue. However, the declines should be understood within a larger context: Apple’s wearables segment alone has already reached the size of a standalone Fortune 140 company, which is to say around $22 billion in annual revenue. This is also traditionally the quarter ahead of new flagship iPhone and Apple Watch releases, so sales are often slow.

On the other hand, the company believes iPad and Mac sales should improve over the coming quarter, perhaps buoyed by the new iPad Pro and latest MacBook Air. Cook suggested gains may be attributable to customers needing these categories of devices for remote work and online education.

When asked about Apple’s continued R&D efforts, Maestri called out the company’s purchase of Intel’s 5G modem baseband group as an investment in a core technology and said Apple will continue to invest in development. Nothing has changed on the company’s M&A side, Apple said, and it’s always looking for ways to accelerate its product roadmaps and fill gaps in its portfolio in hardware, software, and services.