On Tuesday afternoon, Apple reported March quarter (fiscal second quarter) revenue of $58.02 billion (down 5% annually) and GAAP EPS of $2.46, beating consensus analyst estimates of $57.54 billion and $2.36. Importantly, the company also guided for revenue in the seasonally weaker June quarter to be in a range of $52.5 billion to $54.5 billion; that's above a consensus estimate of $52.1 billion and compares with year-ago revenue of $53.27 billion.
Apple, which typically uses its March quarter report to disclose changes to its capital return program, also announced that it's adding $75 billion to its stock buyback authorization and hiking its quarterly dividend by 5% to $0.77 per share. The forward dividend yield stands at 1.5%.
Apple shares rose in after-hours trading on Tuesday and were up 5.1% to $210.93 in pre-market trading on Wednesday, leaving them at the highest levels seen since early November and once more close to a $1 trillion market cap. Chip suppliers such as Cirrus Logic (CRUS - Get Report) , Skyworks (SWKS - Get Report) , Qorvo (QRVO - Get Report) , Broadcom (AVGO - Get Report) and Qualcomm (QCOM - Get Report) also gained.
Here are some notable takeaways from Apple's earnings report and call.
1. The iPad Pro, Apple Watch and AirPods Were Standouts
After growing 17% annually in the December quarter, iPad revenue rose 22% in the March quarter to $4.87 billion, easily topping a consensus estimate of $4.09 billion. On the call, Tim Cook noted iPad revenue grew at its strongest clip in 6 years, while adding growth was "primarily" driven by iPad Pros.
Also boosting Apple's top line: Wearables, Home and Accessories revenue, which covers every hardware business outside of the iPhone, iPad and Mac, grew 30% to $5.13 billion, beating a consensus of $4.79 billion. A near-50% increase in wearables (Apple Watch and headphones) revenue was responsible.
Cook mentioned Apple Watch revenue hit a record for a non-holiday quarter, and called initial demand for Apple's second-gen AirPods (they launched in late March) "incredible." CFO Luca Maestri indicated demand for the new AirPods currently outstrips supply.
2. iPhone Sales Fell as Expected, But There Was Some Late-Quarter Improvement
Following a 15% drop in the December quarter, iPhone revenue (54% of total revenue) fell 17% in the March quarter to $31.05 billion, which compares with a consensus of $31.1 billion. However, Cook said annual iPhone declines "were significantly smaller in the final weeks of the March quarter," and that emerging markets price cuts and revamped trade-in and financing offers were providing a lift. Trade-in volume at Apple Stores was said to be up more than 300% relative to the year-ago quarter.
Maestri says Apple expects its non-iPhone businesses to collectively see "strong revenue growth" in the June quarter, and for iPhone revenue to decline at a slower rate than it did during the first two quarters of fiscal 2019.
3. Services Momentum Remained Broad-Based
Services revenue rose 16% to $11.45 billion (the growth rate would've been higher if not for a recent accounting change), topping an $11.32 billion consensus. The App Store, Apple Music, iCloud services, AppleCare, Apple Pay and the App Store search ad business all saw double-digit growth. And though Apple doesn't like to talk about it, large search ad revenue-sharing payments from Alphabet/Google (GOOGL - Get Report) have also been a tailwind for Services revenue.
Among the disclosures made on Apple's call: Paid accounts on Apple's digital content stores grew by a strong double-digit clip, paid subscriptions across Apple's ecosystem rose by another 30 million sequentially to over 390 million, with paid third-party subscriptions rising over 40% annually in each geographic reporting segment; Apple Pay transaction volume more than doubled annually; and App Store search ad revenue rose around 70%. In addition, while talking about the services Apple unveiled in March, Cook says Apple has seen a "significant level of interest" in the Apple Card.
As expected, Apple's services gross margin (GM) remained much higher than its product GM. While product GM fell to 31.2% from a year-ago level of 33.8% (lower iPhone sales weighed), services GM rose to 63.8% from a level of 61.6%.
4. CPU Shortages Weighed on Mac Sales
Mac revenue fell 5% annually to $5.51 billion, missing a $5.85 billion consensus. On the call, Cook indicated Intel (INTC - Get Report) CPU shortages weighed on the business (plenty of other firms are also dealing with them), and that Apple thinks its Mac revenue would have been up otherwise. He added Apple doesn't think the shortages "will have a significant impact" on its June quarter results.
5. Chinese Sales Fell Sharply Again, While Other Regions Fared Better
"Greater China" revenue fell 22% annually to $10.2 billion, after having dropped 27% in the December quarter. But Apple saw a bit of growth in the Americas region, where sales rose 3% to $25.6 billion, and in Japan, where sales rose 1% to $5.5 billion. European segment revenue fell 6% to $13.1 billion, and revenue in the "Rest of Asia Pac" segment fell 9% to $3.6 billion.
Cook did say (echoing his comments about overall iPhone demand) that Chinese iPhone sales trends improved in the final weeks of the March quarter. He attributed this to a mixture of price cuts, trade-in and financing offers, government stimulus programs and "an improved trade dialogue between the U.S. and China," which he argues has improved consumer confidence.
Growth rates in various international markets would have been a little higher if not for a strong dollar. Forex is said to have had a 2-percentage-point impact on Apple's total March quarter revenue growth, and is forecast to have a 3-point impact on June quarter growth.
6. The Installed Base Continues Growing
Apple's total active device installed base, now above 1.4 billion, is said to have grown in each of its geographic reporting segments, with new records hit for "all major product categories." That includes the iPhone, whose installed base was disclosed three months ago to be above 900 million.
Also disclosed: Over half of all iPad buyers during the quarter were first-time iPad buyers, and nearly half of all Mac buyers were first-time Mac buyers.
7. Buybacks Picked Up
Following a December quarter during which Apple repurchased $8.2 billion worth of stock, the "repurchases of common stock" line item within Apple's cash flow statement rose by $23.7 billion sequentially. Maestri said Apple initiated a $12 billion accelerated buyback program in February that yielded the initial delivery of 55.1 million shares, and also bought back $12 billion worth of stock via open-market transactions.
Maestri also reiterated that Apple, which ended the March quarter with $225 billion in cash and $113 billion in debt, aims to eventually become net cash neutral. Apple's diluted share count for the March quarter was down by about 368 million annually to 4.7 billion, which of course provided a lift to EPS.
8. R&D Spend Grew at a Healthy Clip
While Apple's GAAP SG&A spending rose just 7% annually to $4.46 billion, its R&D spend rose 17% to $3.95 billion. That's a slightly faster growth rate than the December quarter's 15%, and comes amid disclosures and reports that indicate Apple is working on (among other things) an AR headset, a 5G modem and a self-driving system, to go with various improvements for existing product lines.
TheStreet's Eric Jhonsa previously covered Apple's earnings report and call through a live blog.