Apple reports lower iPhone sales than expected for the fiscal second quarter

Apple reported its fiscal second quarter earnings this afternoon and the number on everyone's mind, iPhone revenue, amounted to $28.96 billion. That came in below Wall Street expectations of $30.89 billion. It also was a 6.7% decline from the $31.05 billion in handset sales that Apple generated during the same quarter last year. For the first half of its fiscal year, iPhone sales were $84.92 billion, a 2.3% hike from the $83.03 billion it reported for the first half of last year.

Apple's fastest-growing unit, Wearables, Home, and Accessories brought in $6.28 billion in gross. Compared to last year's $5.13 billion, this sector saw revenue grow 22.4% during the three-month period. Devices in this category include the most popular timepiece in the world, the Apple Watch, and the most popular in-ear accessory, the AirPods. Wearables revenue for the first half amounted to $16.3 billion, 31% higher than the first half total for fiscal 2019. Tablet sales started to pick up during the fiscal fourth quarter of 2019. For the last quarter, iPad revenue slipped 10.3% from $4.87 billion to $4.37 billion year-over-year. For the first 6 months of fiscal 2020, iPad sales declined 10.8% to $10.35 billion.

Services revenue, which Apple hopes will reach $50 billion this fiscal year, hit $13.35 billion; this is the second consecutive quarter that Apple's Services unit is running at a rate greater than $50 billion. Services revenue rose 16.6% on a year-over-year basis. To take advantage of the large number of active iPhone units (over 900 million) Apple decided to focus on this line of business after handset sales peaked in 2015. This group includes apps with recurring subscription plans such as Apple Music, Apple News+, Apple TV+, Apple Arcade, and in-app purchases from the App Store. The unit also includes Apple Pay, AppleCare+, and more. For the first half of the fiscal year, Apple exceeded $26 billion in Services gross.

The European market showed the greatest growth (9.5%) for Apple while sales in China declined 7.5% during the three-month period. Net income was $11.25 billion for the quarter, a 2.7% decline from the net reported during last year's fiscal second quarter. Overall, Apple had $58.31 billion in revenue for a small gain compared to last year's $58.02 billion. On a diluted basis (all convertible instruments exchanged into shares) Apple's earnings per share were $2.55 for a 3.7% increase. First half gross came in at $150.13 billion and first half net was $33.49. Year-over-year these were gains of 5.5% and 6.2% respectively

While Apple Stores across the globe were shut for most of the quarter (China reopened its 42 units in the middle of March), it didn't stop Apple from unveiling new iPad Pro models with 11-inch and 12.9-inch displays during the month. The new tablets introduced the LiDar Time of Flight sensor which was added to the camera module on the back and delivers improved AR capabilities. The new Magic Keyboard was also announced; connecting to the tablet via magnets, the keyboard includes a backlight and a touchpad.

Apple CEO Tim Cook commenting on the report said, "Amid the most challenging global environment in which we’ve ever operated our business we’re proud to say that Apple grew during the quarter." The executive told CNBC that "There was a significant, very steep fall-off in February. That began to recover some in March, and we’ve seen further recovery in April. So, it leaves us room for optimism. We have great confidence in the long-term of our business. In the short-term, it’s hard to see out the windshield to know what the next 60 days look like, and so we’re not giving guidance because of that lack of visibility and uncertainty. It was a very unique quarter. I’ve never had anything quite like this. I hope to never have it again, but I’m incredibly proud of the company and what was achieved during that period of time." Cook also revealed that Apple News had 125 million monthly users during the quarter thanks to the COVID-19 outbreak. Apple's COVID-19 screening app has been accessed 2 million times while 3 million people visited the web version.