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Earlier this week, I “kicked off” Apple’s earnings season. In my first preview article, I reviewed what analysts seem to be expecting of the Cupertino company in the third fiscal quarter. I concluded that “expectations have been much more divergent this time due to the COVID-19 crisis”.

Now, I start tackling each of Apple’s main segments or products categories, one at a time. In a series of earnings preview articles, I will present (1) a review of what happened in the second fiscal quarter, followed by (2) what could have gone right and (3) what could have gone wrong in the most recent period.

I start with the iPhone. Regarding financial results and even the stock’s performance, Apple’s flagship product has been losing its relevance slowly over time. Still, the iPhone is one of the most important topics of conversations on any of Apple’s earnings day, and will likely remain so for at least another few years.

What happened last quarter?

In fiscal second quarter 2020, the iPhone lacked traction. The segment was down 7% year-over-year, only outperforming Macs. See chart below.

One of the biggest problems with the category was likely Greater China, hit earlier by the COVID-19 crisis. Revenues in the region were down nearly 8%, which I assume must have contributed to weakness in iPhone sales. Also, supply chain disruptions, store closures, and a decline in demand for high-priced devices during times of economic distress likely served as meaningful headwinds.

What could go right

  • The iPhone SE launched on April 15, well in time to make an impact on total smartphone sales in the fiscal third quarter. Some estimates point at 12 million to 14 million units of the less expensive device shipped in the most recent calendar quarter, which would be very impressive. For context, this number would represent nearly one-third of all iPhones shipped in fiscal 3Q of 2018 – the last time that Apple reported unit sales in a seasonally-comparable quarter.
  • Let’s not forget that the iPhone 11 has been a big hit. I have written a whole article about how “Apple has taken the right steps” with the iPhone 11 by streamlining the model lineup. This is probably why iPhone sales were stronger than industry average in late 2019 and early 2020. Some of that same strength could spill into the most recent quarter.
  • China seems to be well ahead in its recovery process, which has been forming since late May at the very least. As a reminder, the region has been a huge under-performer for Apple in the past several years, more so than the rest of the world in fiscal second quarter. This may be the time for the Asian country to shine again, and maybe help to boost iPhone sales.

What could go wrong

  • COVID-19 continues to wreak havoc in the economy, especially in Apple’s crucial North America market. Stores have been closing across the US since June, and macroeconomic indicators don’t look very favorable. For example, banks have started to report second calendar quarter results, and consumer spending seems to have clearly taken a hit during the period.
  • I wonder how much Apple’s absence from the 5G market (for now) may impact consumers’ decisions to buy a higher-end device before the expected September refresh.

Check out these articles next:

iPhone 12: Apple’s Rocky Road To The 5G Era

iPhone SE: Hopes For A Smartphone Revival

Is Apple A Good Stock For The Third Quarter?

(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)