Apple withdraws guidance as coronavirus hits iPhones sales but services surge

Apple Inc (NASDAQ:AAPL) earnings fell less than expected in the past quarter as a decline in iPhone sales due to the coronavirus pandemic was offset by a rise in demand for its various digital services.  Turnover came in at US$58.3bn for the second quarter of the tech titan’s fiscal year, up 1% compared to this time last year but well short of the US$63-67bn guidance given before the virus outbreak. Having already warned Wall Street that sales wouldn’t meet previous guidance because of the pandemic, chief executive officer Tim Cook told analysts and reporters on a conference call that the company saw “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.” Hardware revenue fell 3.4% in the quarter to US$45bn, including a 6.7% drop in iPhone sales to US$29bn, but sales of services such as Apple Music, the App Store, iCloud, Apple TV, Apple Arcade and Apple News rose 16% to US$13.3bn, an all-time record. Quarterly earnings per share rose 4% to US$2.55 on a fully diluted basis, which was better than the Street’s US$2.26 consensus forecast. Chief financial officer Luca Maestri noted that Apple’s “active installed base of devices reached an all-time high in all of our geographic segments and all major product categories”. He was also proud that free cash flow was US$39.9bn, compared to US$32.1bn last year, topping up the group’s cash pile to US$94.1bn. However, while the Cupertino-headquartered company declared a dividend of US$0.82 per share, an increase of 6% on a year ago, no guidance was given for the coming quarter. In light of the pandemic, a global lockdown, with stores closed across the globe, analysts at broker Wedbush said the results were “a major feat in a dark storm”. They added: “We believe not giving guidance is prudent as Apple remains in the eye of the demand storm and with so many variables we believe the June quarter is playing a game of blindfolded darts at this point for Cupertino (and the Street) with a core focus of investors on the other side of the dark valley into September and FY21.” Wedbush forecast that minimal new smartphone activity takes place in the coming quarters and only a 10-15% chance the 5G iPhones will be released in October due to the global lockdown-like conditions with the supply chain in Asia still on a path to normalization.  Analyst Sophie Lund-Yates at Hargreaves Lansdown said: “The full impact of coronavirus is as yet unknowable.  “Talk of problems with supply chains and demand in key markets aren’t ideal, but given the brunt of any disruption is yet to come, no one can truly say what the eventual fallout will be.”  She said it was reassuring for Apple to see that wearables and services were still flying off the shelves, possibly bolstered by the new working from home cultures, and increased health awareness, and that prior to the outbreak the latest handsets were a hit.  “That’s crucial, because despite plenty of talk around Services, Apple is still very much a hardware business. And even before coronavirus conditions weren’t perfect.  “As the long-time market leader the competitive landscape is hotting up, which is perhaps behind the recent launch of the new iPhone SE, which at around $399 is less than half the price of some current models. As convincing people to upgrade becomes more onerous, taking the price tag down a few notches is one of the few ways to change customers’ minds.”