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Highlights from Apple's Q1 2020 Financial Conference Call on Hardware, Services, China, Apple TV+ and much more

1 cover tim cook  conference call commentary


During Apple's Financial Conference Call for Q1 2020 CEO Tim Cook delivered his usual introductory commentary about the company's financial quarter that provides shareholders, analysts and news groups with some added color and focus about the performance of the company's products and services. Our report also covers a few key questions that were asked by the financial community and Tim Cook's responses.


Conference Call Points from Apple's CEO


On iPhone


On iPhone, revenue in the December quarter was 56 billion dollars. Again, that's up 8% over a year ago, thanks to the exceptional demand for the iPhone 11, iPhone 11 Pro, and iPhone 11 Pro Max. In fact, iPhone 11 was our top-selling model every week during the December quarter, and the three new models were our three most popular iPhones. We had double-digit growth in many developed markets, including the U.S., the U.K., France, and Singapore, and also grew double digits in emerging markets led by strong performances in Brazil, mainland China, India, Thailand, and Turkey. 


On Services


Turning to services, Cook noted that "Q1 revenue reached 12.7 Billion dollars, an all-time record growing 17% over last year. Once again, we saw double-digit growth in all five of our geographic segments and established new all-time records for multiple categories, including cloud services, music payment services and our App Store Search ad business, as well as setting a December quarter record for the App Store and Apple Care. 2019 was a historic year for our services business and I'd like to touch on some highlights for the app store."


More specifically, Cook added that "2020 started off strong with customers spending a new single-day record 386 million dollars on New Year's Day alone, a 20% increase over last year. Apple Arcade, our new game subscription service, has been fast off the blocks with a catalog of over 100 new and exclusive games. You won't find anywhere else all playable across Apple devices with new games and expansions added every month.


Apple TV+ is off to a rousing start, and I want to congratulate the entire team at the morning show for their multiple Golden Globe nominations. Jennifer Aniston on her Screen Actors Guild award and Billy Crudup on his Critics Choice Award. We continue to focus on telling stories that matter like Little America, which recently premiered to widespread critical acclaim with much more great content still to come.


Apple News now draws over 100 million monthly active users in the US, UK, Australia and Canada and provides a curated and personalized experience using on-device intelligence to recommend stories. Apple News+ continues to add new titles offering subscribers seamless access to the world's top publications across all of their devices.


On Apple Pay


On Apple Pay, revenue and transactions more than doubled year over year with a run rate exceeding 15 billion transactions a year. Apple Pay transit support expanded with customers paying for journeys on transport for, and more easily with Apple Pay Express Transit, and in spring of 2020, iPhone and Apple Watch, customers will be able to simply tap to ride trains and buses and even more cities, including Shenzhen and Guangzhou. We are thrilled with the continued growth of Apple Card, and last month customers began using Apple Card monthly installments at Apple Retail and online to purchase new iPhones and pay for them over 24 months. We see great promise for these recently launched services and we're optimistic about what we've got in the pipeline for each of them.


On Wearables


On Wearables, we had another incredible quarter. Setting an all-time record in virtually every market we track around the world, and this product category is now the size of a Fortune 150 company. Demand for AirPods continues to be phenomenal, particularly for our recently launch Air AirPods Pro, our new additions to the AirPods family that features active noise cancellation. Apple Watch had a great start to fiscal 2020, setting an all-time revenue record during the quarter. It continues to have a profound impact on our customers' lives and it continues to further its reach as over 75% of the customers purchasing Apple Watch during the quarter were new to Apple Watch. Both AirPods and Apple Watch were must-have holiday gifts, helping drive unprecedented results for the category. Even as we face supply constraints for Apple Watch Series 3 and AirPods Pro.


On Macs and iPad


Apple's Macs didn't do well this quarter so Apple's CEO mixed in iPads to provide a different view of Apple computers. Cook noted that "Mac and iPad generated 7.2 and 6 billion in revenue respectively, and the high level of customer satisfaction and loyalty for both products drove the active installed base of both Mac and iPad to new records in all geographic segments.


For iPad, we saw growth in key emerging markets like Mexico, India, Turkey, Poland, Thailand, Malaysia, the Philippines, and Vietnam. With our current lineup of iPad Pro, iPad Air, iPad mini, and iPad, along with the new iPadOS, we give customers an unparalleled tablet experience, integrating hardware, software and services in a way that only Apple can.


This was also a very exciting quarter for the Mac as we launched our most powerful notebook ever. The 16-inch MacBook Pro as well as Mac Pro and Pro Display XDR, the most powerful tools Apple has ever put in the hands of pros. And we've already seen a strong response from the pro community, from developers, photographers and music producers to filmmakers and scientists who rely on the Mac to create their life's best work.


We also want to take a moment to congratulate all the Grammy-winning and nominated artists this past weekend who rely on Logi Pro 10 and their Mac to create incredible music we all love. I want to call out and celebrate the exceptional work of our retail and online teams."


On Apple Retail and Online Teams


Cook stated that he wanted to "call out and celebrate the exceptional work of our retail and online teams. This quarter, we opened a beautiful new store in Kawasaki Japan, and exciting things are taking place inside each and every store. Thanks in part to a doubling in iPhone trade-ins versus last year, our retail and online stores set an all-time record and delivered strong double-digit growth in iPhone.


We see a very bright future for these efforts, and we continue to innovate to ensure that everyone who visits an Apple retail location has a great experience. We begin 2020 with our greatest product lineup ever.


In November, we released a completely redesigned Everyone Can Code curriculum to help introduce more elementary and middle school students to the world of coding. The new curriculum includes even more resources for teachers, a brand new guide for students, and updated swift coding club materials.


Today, millions of students and more than 5000 schools worldwide use Everyone Can Code curriculum to bring their ideas to life and develop important skills, including creativity, collaboration, and problem-solving.


November also saw the launch of our new research app, the latest in our ongoing effort to put the future of health in the hands of every user. Customers in the U.S. can enroll in three landmark multi-year health studies that we're undertaking with leading academic and research institutions. The Apple Women's Health Study, the Apple Heart and Movement Study and the Apple Hearing Study. As in everything we do, we built user privacy into the research app from the ground up.


A Few Points from Apple's CFO


Apple's CFO Luca Maestri touched on Apple Music setting an all-time revenue record offering a catalog of over 60 million songs to our customers. iCloud also generated an all-time revenue record, growing very strong double digits while offering our customers a safe, secure, and seamless experience across all their devices. It was also a December quarter record for Apple Care thanks to strong service agreement attach rates and expanded distribution.


A Few Q&A Points


On Apple Watch: In the Q&A session Amit Daryanani from Evercore asked: on the wearable side, how much of the growth is coming from first-time buyers of AirPods or Apple Watch versus folks that seem to be just upgrading the products that they have?


Answer Cook: "75% of the customers are new to the Apple Watch. And so it's still very much selling to new customers at this point."


On Apple TV: Tom Forte, D.A Davidson & Co wanted to know internally, how Apple was gauging success. Is it purely on critical acclaim? Is it a number of consumers that are using the service contribution of service revenue, et cetera?


Answer in-part, Cook: "We are primarily measuring ourselves on the number of subscribers. As you can tell from the way that we launched the product, we started with a very aggressive price at $4.99."


On China: Shannon Cross, Cross Research asked the question: "Can you talk about what you're seeing in the region — what you were seeing in the region prior to the health crisis?


Answer in-part, Cook: "We had double-digit growth for iPhone in Mainland China. So that was an important change from where we had been running. We also had double-digit growth in services in Mainland China and we had extremely strong double-digit on wearables and so really there were a number of different factors in terms of the things that customers are responding to.


Three-quarters of the customers buying a Mac in China are new and nearly two-thirds of the customers buying iPad are new, and so it was a terrific quarter. We had three of the top four selling smartphones in urban China, according to Kantar."


On 5G Phones: Katy Huberty, Morgan Stanley asked: "How big of a demand driver do you view 5G capability in a handset? And what's your view as to what the killer app will be from a consumer perspective?"


Answer, Cook: "With respect to 5G, I think we're in the early innings of its deployment on a global basis. We obviously couldn't be prouder of our line-up and are very excited about our pipeline as well, and wouldn't trade our position for anybody." Cook didn't want to elaborate being that Apple doesn't comment on future products.


On iPods Pro Status: Kyle McNeely, Jefferies asked "what should we think about the timeline of when those capacity constraints [on iPods Pro] might be alleviated and will they come from capacity additions or the end of the natural work out of, kind of, unit shipments and something on the demand side?"


Answer in-part, Cook: "On AirPods Pro, I don't have an estimate for that for you. I just can't predict when at this point. We seem to be fairly substantially off there and we're working very hard to put in additional capacity."


On Augmented Reality: Mike Olson, Piper Sandler asked in respect to Augmented Reality: "I'm wondering if you could share your thoughts about how you think it starts to impact our lives most significantly. For example, will the inflection point AR come from gaming or industrial usage or some other category. In other words, where will the average person kind of first feel the impact of AR on their lives in a significant way?


Answer, Cook: "When you look at AR today, you would see that there are consumer applications, there are enterprise applications. This is the reason I'm so excited about it is, you rarely have a new technology where business and consumer both see it as key to them. And so I think the answer is that that's the reason that I think it's going to pervade your life is because it's going to go across both business and your home life. And I think these things will happen in parallel. There are already companies that are deep into the enterprise business that are working on applications for the enterprise. And of course, you can go on the Store and see thousands of apps that are ARKit enabled at this time. And with even more coming."


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