Apple’s December results: What you need to know

It turns out that Big Tech doesn’t need to sell privacy to make money. Selling useful hardware that does what people want is good business, too, which is why Apple’s just reported its most profitable quarter in company history.

A new (Apple) world record

You’ve read the statement, and may have access to the transcript, so I won’t bore you with repeats, other than observing that more than $15.8 billion in services sales, massive iPhone 12 sales and growth in every product category conspired to create the company’s $111.4 billion quarter.

The COVID-19 pandemic has generated huge problems for everybody, but Apple certainly seems to have benefitted from it in the sense that we’ve all been investing in the kind of computing and mobile kit we need to struggle through the story. This also helped Apple beef up services attachments.

Apple in the enterprise

Apple confirmed what we all felt: That people have been spending on Macs and iPads to help them work and learn from home.

The company also discussed its growing place in the enterprise and alluded to the work it has been doing to expand in that space. Apple CEO Tim Cook confirmed: “We’ve been on a multi-year effort in the enterprise and have gained quite a bit of traction there…. We’re very optimistic about what we can do in that space.�

Apple CFO Luca Maestri talked about, “all time highs in the enterprise market,� noting that many businesses have been “shifting their technology investments in response to COVID-19.�

While Maestri didn’t offer many specifics, though he did discuss how businesses are replacing hundreds of millions of desk phones while employees are working remotely. “Mitsubishi UFJ Bank, one of the largest banks in the world, announced that it will be replacing 75% of its fixed phones with iPhones,� he said. “By doing so, it expects to realize significant cost savings by providing a secure mobile platform to employees.�

He also alluded to the growing implementation of employee-choice programs across enterprise IT: “We’re also pleased with the rapid adoption of the Mac employee choice program among the world’s leading businesses,â€� he said.

Maestri went on to describe what we know to be true of such schemes, which reward those business who put them in place with “improved productivity, increased employee satisfaction and talent retention.�

The decision to introduce Apple silicon M1 Macs may extend its reach into the enterprise, particularly in times of increased remote working, he said.

iPads and Macs

As noted, people are purchasing Apple’s highly productive iPads and Macs in large numbers to support home working and home learning during these times. Apple noted that it is seeing many customers adopting iPad as their primary device, and saw high customer satisfaction across both categories. 451 Research measured customer satisfaction at 93% for Mac and 94% for iPad.

Apple’s Mac sales generated a December quarter record, revenues rose 21% year over year and the company set all-time revenue records in Europe and APAC, along with December quarter records in the Americas, China and Japan. Revenue reached $8.7 billion.

The company was completely clear that this performance was driven by strong demand for the new M1-powered Macs.

Apple’s decision to introduce the fantastic iPad Air was also well-starred. iPad sales surged 41%.

“It’s clear that some people are using these as laptop replacements,â€� said Cook. “Others are using them as complimentary to their to their desktop, but the level of growth there has been phenomenal — 41%. And yes, part of it is work from home and part of it is distance learning. But I wouldn’t underestimate how much of it is the product itself in both the case of iPad and Mac, and of course our share of the Mac is quite low in terms of  the total personal computer market and so there’s  lots of headroom there.â€�

He noted that around half of customers purchasing a Mac or iPad are completely new to those platforms, signifying an expanding user base. 

iPhone 12 seems to be a ‘supercycle’ ecosystem

Apple’s iPhone 12 series has been well received. Apple claimed a “record number of device activations during the last week of the quarter.� iPhone sales climbed 17% year-on-year and the company noted it saw the largest number of upgraders it has ever seen in a quarter.

The latest survey of consumers from 451 Research puts iPhone customer satisfaction at 98% for the iPhone 12 family.

Apple surpassed 1.65 billion devices worldwide in the quarter. The company confirmed the installed base of iPhones is now over 1 billion, meaning almost one in every six people alive on the planet now uses one.

Services

Apple has exceeded targets on services, but did warn that it may see a slowdown in segment growth in the coming quarter, as interest was boosted by lockdown orders in 2020.

Achievements? Apple now has more than 620 million paid subscribers across its services, up 140 million since the 2019 December quarter. And 90% of U.S. stores now accept Apple Pay.

Maestri seemingly confirmed that services revenue was strongest in the App Store, cloud services and Music. Services brought in more than $15 billion to revenues in the quarter.

Wearables and more

Wearables, home and accessories climbed 30%. Apple said that almost 75% of those who purchased an Apple Watch during the quarter were new to the product.

The company also claimed new revenue records for each subgroup, but said nothing specific about HomePod sales, beyond relating “significant� demand for the mini. Its wearables business is now the size of a Fortune 120 company.

The company claimed it saw the highest volume of FaceTime calls ever seen across the socially-distanced 2020 holiday quarter.

Apple in China, emerging markets

While there’s no doubt that protectionist trade policy and other disagreements have placed stress on Apple’s Chinese connection, the company saw “phenomenal� response to the new iPhones, confirming pent up demand for a 5G device. Cook said China saw a “record number� of iPhone upgrades, which he speculated meant people had held back pending introduction of 5G support. China is one market where 5G networks are well established.

What makes this even more interesting in the current quarter is that March is typically one of Apple’s strongest quarters for services and App Store, in part because of the Chinese New Year. China locked down in response to the pandemic at that time in 2020, which drove apps and games sales, but this may not be repeated this year.

Elsewhere, Apple confirmed it achieved double-digit growth and new all-time records in every geographic segment and nation where it does business.

Cook said: “There’s a lot more headroom in those markets. If you take India as an example, we doubled our business last quarter compared to the year ago quarter. But our absolute level of business there is still quite low relative to the size of the opportunity and you can kind of take that and go around the world and find other markets that are like that.â€�

Retail went online

While many of Apple’s retail stores needed to close during the quarter as the COVID-19 threat remains, the company still achieved an all-time revenue record in its retail segment, driven by its online store.

There were casualties, however. Apple said its AppleCare business suffered as a result of these closures, and admitted that its advertising business (which isn’t the hugest operation) had a tough time as ads revenue declined in response to falling economic activity across the board.

Doing the right thing

One good thing about Apple is that it manages to talk and walk simultaneously. It’s long association with Product (RED) persists, and the company is not at all fearful to engage with the great matters of our time, from the need to protect the environment to the challenge of systemic racism, and how to build back better once the COVID-19 threat recedes and thoughts can turn back to the broken global economy.

Of course, statements like those are relatively easy for a multi-billion dollar company to make, and the depth to which wealth inequality has fractured most nations will take a great deal of time and effort to repair.

All the same, it was good to learn that Apple employees have donated almost $600 million and 1.6 million hours in volunteer time to more than 34,000 voluntary organizations.

In an early step that recognized that the impact of COVID-19 would most be felt across the most disadvantaged groups in global (and national) society, Apple and Product (RED) adapted to provided PPE to healthcare providers as well as support and medicine to help in the struggle against HIV.

How Apple does business

One strange question that cropped up during the call asked Apple to shed a little light on what internal tools it uses when deciding on new products and initiatives in its business.

Cook naturally focused on Apple’s customary mantra:

• Is this a product or service we would want to use ourselves?
• If it is, is the market big enough to justify the effort?
• Or is the product or service a good fit to an existing offering, in which case to what extent does it improve the customer experience?
• The customer experience is the final filter.

Cook also explained, “Taking into account all of those things … the kind of things that we love to work on are those where there’s a requirement for hardware software and services to come together because we believe that the magic really occurs at that intersection.â€�

The CEO also said:

“If you look at our share in some of the other products, whether you look at iPhone, or Mac, or iPad, you find that the share numbers leave a fair amount of headroom for market share expansion. And this is particularly the case in, in some of the emerging markets where we’re proud of how we’ve done.”

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