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Falling iPhone sales bring Apple's Q2 revenue billions below its initial expectations – but its bets on wearables and services are paying off (AAPL)

Tim Cook
  • Apple reported revenue of $58.3 billion for its fiscal second quarter, falling below its initial Q2 guidance but surpassing Wall Street's muted expectations. 
  • Apple's iPhone revenue fell compared to the year-ago quarter, but its services and wearables divisions continued to see strong growth.
  • Apple said in February that it did not expect to meet its second quarter revenue guidance because of the coronavirus.
  • Analysts will likely ask about how the pandemic has impacted Apple's reported plans to release a 5G iPhone in the fall. 
  • Visit Business Insider's homepage for more stories.
Apple reported fiscal second-quarter revenue of $58.3 billion, falling below its initial projection of between $63 billion and $67 billion yet still surpassing Wall Street's muted expectations. At the same time, its burgeoning wearables and services divisions still saw significant growth, once again softening the blow from slowing iPhone sales.
It's Apple's first earnings report since the coronavirus pandemic upended the economy, providing the first look at how the COVID-19 outbreak may have impacted the company's business. Apple shares were down by roughly 1.5% in after hours trading following the earnings release.
"This may not have been the quarter it could have been absent the pandemic, but I don't think I can recall a quarter where I've been prouder of what we do or how we do it," Apple CEO Tim Cook said on a conference call on Thursday.
Here's a look at the key numbers compared to what analysts were expecting and how Apple performed in the year-ago quarter:
  • Q2 revenue: $58.3 billion. Analysts estimate $54.24 billion; Year-ago quarter: $58 billion
  • Q2 EPS: $2.55. Analysts estimate $2.25; Year-ago quarter: $2.46
  • Q2 iPhone revenue: $29 billion. Year-ago quarter: $31.1 billion
  • Q2 Services revenue: $13.3 billion; Year-ago quarter: $11.5 billion
  • Q2 Wearables, home, and accessories revenue: $6.3 billion; Year-ago quarter: $5.1 billion
Apple said in February that it did not expect to meet its initial second-quarter revenue goal of between $63 billion and $67 billion because of weakened demand and supply constraints stemming from the pandemic.
Apple's iPhone revenue declined to $29 billion compared to $31.1 billion in the year-ago quarter, a dip that was likely expected since Apple lowered its revenue guidance citing weak demand. The slowdown comes just after the iPhone rebounded from several quarters of declines with higher-than-expected holiday sales thanks to positive reception of the iPhone 11 and iPhone 11 Pro.
The company's services and wearables division continued to be a bright spot for Apple, as they have been in other recent quarters. Apple's services division, which includes offerings like Apple TV Plus, Apple Music, and Apple Care, reached an all-time record. Its wearables division also reached a quarterly record.
The strong performance from Apple's services division wasn't a surprise for some analysts considering people are spending more time at home. As such, consumers may be more willing to try Apple TV Plus.
"A lot of those revenues should be a little stickier, since some of them are subscription-based and shouldn't be as discretionary, like a phone purchase for instance," Robert Muller, enterprise hardware analyst for RBC Capital Markets, said to Business Insider.
Analysts will probably be looking for answers about how the virus will impact Apple's reported plans to launch a 5G iPhone in the fall, as well as insight about how iPhone demand has been faring in general throughout the pandemic. Apple also just released the $400 iPhone SE on April 24, so analysts will likely be looking for comments about how reception has been so far heading into the June quarter.
This story is developing. Please refresh for the latest updates. 
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