Q2 2020 Earnings Call
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We'd like customers skip payments without incurring interest on Apple card for March and April in light of financial hardship for many families. We worked with everyone from Oprah to Lady Gaga to inform entertain and get back through Apple TV.
And services like face time in messages set new all time records for daily vote.
During this quarter as users relied on their devices to stay connected into in a new reality.
And software at the same time that our teams worked with great creativity and excitement as we prepare to deliver our first ever all online worldwide developers conference. Later this quarter. They also worked for the same creativity and speed to put together our coated 19 symptom checking website an app.
In partners for Americans experiencing food and security as a result of the crisis.
When you tally these things up and consider our ongoing two to one match for employee donations apples contributions to the global response are significant diverse and a great source of pride for the whole team.
We're also doing what we can to help our employees their families and by extension their communities stay safe and well by modifier hang our operations where appropriate. This extends of course to our retail employees. They are apple space to our customers and an instrumental part of our business and were compensating them normal.
Despite store closures.
During a quarter, where circumstances evolve by the hour, we have been gratified by the resilience and adaptability of our global supply chain.
While we felt some temporary supply constraints in February our operations team suppliers and manufacturing partners have been safely returning to work and production was back at typical levels toward the end of March.
At this time of social distance of shuttered schools and gathering places have delayed plans a new ways of socializing, we have seen significant evidence that our products have taken a renewed importance for our customers.
Teachers and students around the world are relying on on our technology to teach learned and stay connected with each other.
We are in the process of deploying major orders of ipads.
To school systems, working to keep learning going strong at a distance, including tens of thousands in Ontario, Canada, Glasgow, Scotland in Puerto Rico, or 100000 to the city of Los Angeles, and 350000 to New York City, our largest educational I pad deployment. However.
Since early March we've seen unprecedented demand for our pro apps from students enthusiast and creative professionals. These folks are keeping us all entertained and inspired as we stay at home and to help them do it we made final cut protein and logic protein available for free for 90 days for everyone.
Yes.
And the reaction has been overwhelming driving software downloads and usage to record levels.
And doctors and medical professionals are making even greater use of Apple watch and other health features to communicate with patients and to treat them safely from a distance when necessary.
With new FDIC guidance on noninvasive remote patient monitoring for example, the SCG App on Apple watch is increasingly being used to facilitate remote TCG measurements and recordings for telemedicine usage, reducing patient and healthcare provider contact and exposure.
Many hospitals, such as Guy singer Health system in Bayou language on health and Stanford Health care are using apps on iPad and iPhone to support communication and video conferences between hospitalized patients and their care teams. This enables the care teams to keep a close watch on patients.
Without entering isolation ratings, which helps to minimize exposure and reduces some of the need for personal protective equipment.
Now when you step back and tally all this up when you consider all the ways coated 19 has touched apple our customers and the way. We work. This may not have been the quarter. It could have been absent this 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.
As I've said at the outset, we achieved revenue of 58.3 billion and underneath that was product revenue of 45 billion.
The performance of our product business had three very different phases during the March quarter.
Based on apples performance during the first five weeks of the quarter. We were confident we were headed toward a record second quarter at the very high end of our.
Experts.
Jones.
In the next five weeks of the quarter as coated 19 started impacting China iPhone supply was temporarily affected as well as demand for our products within China.
This caused us to withdraw our revenue guidance in February at that point demand for our products outside of China was still strong and in line with our expectations.
During the last three weeks of the quarter as the virus spread globally and social distancing measures were put in.
Place worldwide, including the closure of all our retail stores outside a greater China on March 13th and many channel partner 0.6 sales around the world, we saw a downward pressure on demand, particularly for iPhone and Wearables.
Given the lack of visibility and so and certainty in the near term, we will not be issuing guidance for the coming quarter over the long term, though we have a high degree of confidence in the enduring strength of our business.
Our global supply chain is profoundly durable and resilient, we are shown to consistent ability to meet and manage temporary supply challenges like those caused by coated 19.
We have continued to deliver innovative new products across multiple categories that appeal to a broad cross section of customers, including the all new iPhone se, which achieved unmatched technological capacity at an incredible value.
Our teams worldwide had tackled the complexities of this moment with unmatched creativity, good humor and dedication to our customers for company, whose businesses innovation there are real upsides in periodically having to figure out how to do just about everything in a brand new way.
Our long running investment in our services strategy is succeeding this business is growing and as a reflection of our enduring large and growing installed base, we expect to meet our long standing goal of doubling our fiscal 2016 services revenue in 2020.
We have always run Apple for the long term, we entered this period with unmatched finance.
Our robust cash position and our best product pipeline ever.
Major investments, including our five year commitment to contribute $350 billion to the economy here in the United States are moving forward full speed ahead.
It's in these moments that we set ourselves apart, we've always managed through difficult moments by doubling down and investing in the next generation of innovation and that's our strategy today.
And so while we can't say for sure. How many chapters are in this book, we can have confidence that the ending will be a good one.
Apple will continue to do everything we can do to help the global response and to keep our customers learning, creating sharing and connecting so that life can remain as normal as it can during this challenging time.
With that I'll hand things off to Luca.
Thank you Sam good afternoon, everyone.
It has been a very different quarter than we were expecting when we last talked to you at the end of January.
While we could not be more proud of our outflows teams around the world our ROE in supporting local communities and our partners throughout the value chain and our resilience our basis and financial performance as being during these challenging times for the revenue for the quarter was 58.3 billion up 1%.
From a year ago. Despite the extreme circumstances from the impact of Koby 19, and a headwind of 100 basis points from foreign exchange.
Products revenue was 45 billion down 3%.
After a very strong January our performance was impacted particularly during the last three weeks of the quarter, where lockdowns and point of sake closures increased.
Due to koby 19, spreading around the world and affected our products sales. However on a demand basis, our performance was stronger than our reported results as we reduced iPhone channel inventory more than we did a year ago importantly, our installed base of active devices reached an all time high in all of.
I wish you a graphic segments and all major product categories.
Services revenue, followed a different trend, we faced strong year over year growth of 17%.
We set a new all time revenue record of 15.3 billion with all time records in many of our services categories and in most countries. We track I'll provide more detail some of these later.
The company gross margin was 38.4% flat sequentially with cost savings and mixed shift towards services offset by the seasonal loss of leverage.
Product gross margin was 30.3% decreasing 380 basis points sequentially due to loss of leverage and unfavorable mix. This drop was more pronounced than under normal circumstances due to the cold in 19 impact I mentioned earlier.
Services gross margin was 65.4% up 100 basis points sequentially driven by favorable mix.
Our reported tax rate for the quarter was 14.4%. This was lower than I was 16.5% guidance due to onetime discreet items net income was 11.2 billion and earnings per share with $2.55 up 4%.
Operating cash flow was very strong a 13.3 billion and improvement of 2.2 billion.
Over a year ago.
Let me get into more detail for each of our revenue categories. iPhone revenue of 29 billion declined 7% year over year as both iPhone supply and demand were affected by the impact of Colgate 19 at some points during the quarter on the supply side, we suffered from some temporary supply shortages during fab.
Gary, but we've been extremely pleased with the resilience and adaptability of our global supply chain as well as its ability to get people back to work safely when circumstances allow.
Our operations team and manufacturing partners put forth and extraordinary effort to restore production quickly and we exited the quarter in a good supply position for most of our product lines.
On the demand side after a very strong first five weeks, we saw the impact of cobot 19 affect demand in China for the next five weeks and then more broadly around the world for the last three weeks of the quarter, while lock down seven point of sale closures became more widespread in many countries.
Why do we did see slight allegation in our replacement cycle towards the end of the quarter, which we attribute to the widespread point of sale closures.
Our active installed base of iPhone has reached an all time high.
This speaks to the quality of our products and strength of our ecosystem in fact in the USA. The latest survey of consumers from 451 research indicates iPhone customer satisfaction of 99% for iPhone 11, 11 Pro and 11 Promacta combined.
Turning to services.
We set an all time revenue record of 13.3 billion.
We have strong performance across the board with all the time revenue records in the App store Apple music video cloud services, and our App store search ad business.
And we also said in March quarter record for Applecare.
Our new services, Apple TV, plus Apple arcade, Apple news glass and Apple cart continue to add users content than features while contributing to overall services growth as Steve mentioned, well, we're well on our way to accomplishing our goal of doubling our fiscal 16 services revenue.
During 2020.
It's also continue to perform Betty well.
Up on music on cloud services, both sat all time revenue rackets, and Applecare said <unk> quarter record paid subscriptions for all three of these services where up strong double digits.
Casselman engagement in our ecosystem continues to grow strongly and then I'm going to both transacting and paid accounts on on with digital content stores, reaching you all time high you into March Porter in particular, the number of paid accounts increase double digits in all of our geographic segments. We now have over five.
Under it and 15 million paid subscription across the services on our platform up 125 million of from a year ago.
On a sequential basis paid subscriptions grew by over 35 million.
The highest sequential growth we have ever experience with this momentum. We're confident we will reach I would increase Stargate of 600 million paid subscriptions before the end of calendar 2020.
Where it goes home and accessories establish a new marsh quarter record.
With rubbing your 6.3 billion up 23% here have a year with strong double digit performance across all five geographic segments.
Oh, we'll wait about space finished you know the size of a fortune 140 company and we're very excited by the many opportunities in front of US for this product category. For example, Apple watch continues to expand its reach up over 75% of the castle must push purchasing Apple watch around the world during the quarter when you come to the <unk>.
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Next I like to talk about match and I bet. My Crabbing, you'll was 5.4 billion I thought revenue was 4.4 billion towards the end of the quarter. We launch a brand new I pad Crow that includes first thing classical either scanner with some really exciting augmented reality applications.
Macbook Air, which significantly improve performance at a lower price, we're very pleased with a strong customer interest for both products.
Importantly around half of the customers purchasing Max and I pads around the world during the quarter when new to that product.
And the active installed base for both Mac, an I pad reached a new all time high.
And the most recent survey so consumers from four or five one research.
<unk> customer satisfaction at 95% for I pad and 96% for Mac.
In the enterprise market businesses everywhere has been making the transition to working remotely.
We've created content to assist our customers in this transition, including an on demand video learning series focus on topics like remote deployments of ipads, a Max and security. We have also realign out on retail business enterprise teams to provide timely and relevance report to customers as they navigate new work and.
Violence, some of our largest customers offering Mac two employees such as I.B.M.N.S.A.P. I've been able to people quickly to allow employees too easily set up and secure that devices from home.
Benefiting from Apple business manager and zero touch deployment and we've seen countless examples of new projects have remote deployments implement it in just a few hours Benetton for instance worked with our New York teams to deploy an entire fleet of Max overnight. So their team could work remotely.
In essential sectors, such as grocery on financial services, we're seeing organizations adopt our technology to better serve their customers safely.
Leading grocers around the world like trader Joe's Woolworths losses, Sainsburys Lilo and career for.
Oh for Apple pay so customers can use contact list payments.
In a store shift to become fulfillment centres for online orders organizations I, leveraging apps for remote shoppers and food delivery to reduce food traffic.
In banking, where safety and security is a top priority.
One way to protect company and client information is by providing corporate I.U.S. devices to employees will use mobile phones daily as part of their jobs. As an example bank of America purchasing tens of thousands of additional U.S. devices for their workforce.
Let me know turned to our cash position.
First I want to know that liquidity, that's not being an issue for us during these highly unusual financial market conditions.
We have an extraordinarily strong violence. She buried deep access to capital markets and I'm matched free class the free cash flow generation.
We ended a quarter with 193 billion in cash plus marketable securities total debt of 110 billion.
As a result, net cash was 83 billion at the end of the quarter.
<unk> 22 billion to share oldest during the March Porter, including 18.5 billion to open market repurchases of 64.7 million Apple shares and 3.4 billion in dividend and equivalent.
Finally, as we move ahead into the June quarter.
Like to provide some color on what we have seen which includes the types of forward looking information that teachers refer to what the beginning of the call.
Stay mentioned given the lack of visibility uncertainty in the near term.
We will not be issuing guidance for the coming Porter. However, based on what we have seen in April and now we think things might play out I would like to provide some additional insight on headwinds and Tailwinds we're facing.
[noise] from a foreign exchange standpoint, the U.S. dollars appreciated recently against most currencies around the world.
And as a result, we expect our revenue to be negatively impacted by more than $1.5 billion on a year over year basis.
Oh, well global supply chain is back up and running we're in a typical supply position, including our usual ramp associated with new products read recently launched this new launch products I Pro Maqbool care and I phone I see I've all receive outstanding Castle. My response, even during these extreme circuit.
Sentences.
<unk> I phone and Wearables.
We expect a year over year revenue performance to worsen in the June quarter relative to the March quarter, or I pad and Mac.
We expect the year over year revenue performance to improve.
Into June quarter.
On services, we <unk>, we are seeing two distinct trends.
First customers are actively engaging with our ecosystem and digital services and we believe the very strong recent performance in the Appstore video music and cloud services will continue throughout the joint quarter second.
Duty overall reduce level of economic activity due to the lockdowns around the world services like Apple care in advertising of being impacted applecare is comprised of our product repair business and the warranty agreements with our customers both of which have been obviously affected by store closures reduce level.
Customer traffic advertising, which is comprised of third party agreements, our appsource search ads and Apple news ads.
Has been impacted by overall economic weakness and uncertainty on when businesses would reopen.
For gross margin sequential Headwins include foreign exchange.
The mixed with him products and the season or loss of leverage on our product business.
Foreign exchange, we'll have a 70 basis points impact sequentially and 130 basis points <unk>.
<unk>.
Regarding product mix keep in mind the commentary we provided the revenue level.
Sequential tailwinds include cost savings and the mixed shift toward services.
With regard to copy the location our approach remains unchanged.
You know to invest confidently now a future while also returning value to our shareholders.
We're in the midst of developing on most exciting pipeline of products and services ever.
Wife, contributing over $350 billion to the U.S. economy, and expanding our footprint in many cities around the country over over a five year period.
We also continue to believe that there is great value in our stop and we are maintaining our target of reaching a net cash neutral position over time.
As a testament to the confidence we I mean, our business today and into the future Oh aboard as authorized $50 billion for sharing purchases. In addition to the over 40 billion authorization remaining under the current share repurchase plan. Our board has also authorize a 6% increase in our.
Quarterly dividend and today declared a cash dividend of 82 cents per share of common stock.
Table <unk> 14, 2022 shareholders of lack could also made 11 2000 at 20.
Finally, and most importantly, we're managing Apple for the long term as we've always done.
Uncertain times historically, we have continue to invest in the business and this remains how a philosophy.
We will continue to stay focused on what we do best.
<unk> in our product and service pipeline, managing the business wisely and taking care of our teams.
M. believe we will come out from this stronger.
That that's often the call to question.
Thank you Luka, we asked the <unk>.
Yes, but you limit yourself to two questions operator, maybe we have the first question. Please.
Yes that will come from Shannon Cross Cross research.
Oh, Thank you very much for taking my question I didn't help you want as well can you talked about <unk> no second half a day fall foliage wondering if you could just talk maybe a bit more on the cat manage geographic basic you know, what you're saying and and the variance region that you're selling it and and what your hand <unk>.
And then I have a follow up thank you.
Sure Shannon if you look at I'll start with China, you'd be looking at what happened in China, We were having a <unk> a really good January the lockdowns started their toward the end of January as you know February we saw steep decline and demand.
And.
We closed our stores and February.
As the locked down completed in mid mid February the toward the second half February.
Oh, we begin to open stores, we we opened his on a staggered basis that you took about in 30 days until mid March.
And promotes from a demand point of view, we solved in an improvement in March over February and if you look at kind of where we are today, we've seen further improvement in April.
To March and so the that China, you look at the rest of the world.
We were a is doing right in in January the first five weeks of the the quarter and we do believe that we were headed towards the sort of the top end of our expectations.
That we had talked to you about them on the last call.
That the next five weeks worse, yeah, <unk> reacting and getting the supply chain backed up and full force and working through the sharp decline in in China that already talked about.
The the real thing for the rest of the world's happen in March when the shelter to place orders when and the work from home began for those are two three weeks period at the end of the quarter, we saw a sharp decline in demand.
Step out until April and look at that early April started like the end of March but in the second half of April we've seen an uptick.
Across really across the board, it's not it's not just related to a certain G.O. or a certain product. We we think by looking at it a part of it is due to just start new products part of it is due to the stimulus programs taking.
And in April and then a part of it is probably the consumer behavior of of knowing this is going to go on for a little while longer and.
Getting some devices and so forth lined up to to work at home more in particular for.
I think Lukas shared we believe that I pad and Mac are going to improve on a year over year basis during this quarter and that's.
Customers that are either taking online education or working remotely.
And so <unk> complex answer to your question, but that that's what we're saying.
Thank you and that was helpful well I am I try not to start you talked about various puts and takes in the quarter, but getting really disgust operating expenses I know you've mentioned some cost savings on the cog flying I'm curious, how you're thinking about you're studying an object skin and some of that and that kind of challenge chance that you may be thank thank thank you.
That's what I was trying and I just had you know we manage the company for the long term right. So we know that you know the quarter of the business to go to the company's innovation and product and service usually by elements. So we will continue to invest.
You know a pipeline we're very excited about what are we having store and so we will continue to invest there.
Obviously, we had a weight or the environment than so we we didn't manage you know the as G.N.A. portion of the company tightly we I'm, making new investments in the name services that we launched recently, we as we know we purchase the days band activities.
From Intel and obviously, we want to develop that technology, because we consider it's it's a course technologies for us.
And so we will try to balance you know they need to continue to invest it <unk> difficult circumstances, and the fact that.
No. We we we like to manage to business wisely.
Thank you Shannon 18 can we have the next question. Please.
That will be from one female Hon I think of America.
AH yes. Thank you 10, I think I speak for everyone on the called up are already appreciate as well thought apples contribution you are in this pandemic. We all appreciate it. Thank you very much for that.
No <unk> <unk>, Tim and pass downturns, there's not really see an apple pulled back from investing and do you as a company have lucky maintained the product introduction can't and.
But given these are unprecedented times and there are a lot of challenges associated with product development. During a time when you have a normal footprint for such activities and unable to really do auto things in person how should we think about the product development and introduction cadence that'd be bored unacceptable.
Quarters, and I will follow.
Well, we're continuing to operate in so as you can tell a along with everything else going on we were able to launch and shut the I phone S.C. The I pad pro would the magic keyboard and the Mac look here and so the business continues.
The the.
New products are like blood and so we we're continuing to to work everybody's getting used to the work at home.
In some areas that the company.
<unk> people may be even more productive in some other areas, they're not as productive and so it's it's a mix to the depending upon what the the roles are but.
As you can tell from what we did this quarter. Despite the in the environment, we have our head down or working because we know that our customers want.
The products that we've got there even more important and in in these times.
Thank you to as a follow up I know you're doing a lot with with multi Apple card and financing plan for I phones to get your products in the hands of customers, but I was wondering when you consider using the strength of had balance sheet.
Maybe a little differently structure may be deferred payments or things like that and or do you think that that could be other steps like bumbling Betty little consider horses won't you already currently do thank you well. It is you know we we launched the payment plan earlier on Apple cards for I phone.
We're working on doing that for other products as well and you'll you'll see something on that shortly.
So we're very focused on the affordability point the trade in programs also are early wide across the board and and act as both something great for the environment also something great from a a way.
To get that entry price down in terms of deferred payments nothing to nothing to announce today.
But as you know having access to the card at least in the United States gives us more degrees of freedom and that is not using our balance sheet, it's but we play a key Roland and deciding what kind of programs go Oh wait a card.
Thanks ones, we can we have the next question. Please.
That will come from Morgan Stanley's Kitty already.
Hang keeping the question I have the whole team is staying healthy and safe 10, I want to start on a longer I kind of question, where do you see structural changes on the back of then <unk> might pretend opportunities for new revenue streams at Apple and I think.
Currently thinking about your past comments on how often augmented reality, but I'm sure. There's even more area isn't the inspiration and creativity coming out of the company and then that would <unk> I think there there are things from just a a great reminder of how important are products are the <unk> for a remote work.
And it's pretty clear to me that.
Where where things.
We'll get a lot closer to to normal than they are today, obviously I think many people are finding that they can learn remotely and so I suspect that trend world accelerates I think that's probably also true about working remotely on in in some areas and in some.
Jobs and so I think we have we have a significant solutions and products for for those four out for all of those groups on the help the area.
I gave some examples of my opening comments about the E.C.G. being used on the watch you can bet that we're looking at other areas. In this we were already doing that because we viewed that that.
Area was a huge opportunity for the company and a wife for us to help a lot of people.
And and so you you will see us continue on that I I wouldn't say that the.
The health door opened wide or I would say it was already opened fairly wide.
Okay, and then add a follow up that that 50 billion <unk> authorization and impressive in absolute terms that it is at that lower than the last couple of years to just any.
You know any contacts around the thought process of landing on 50 belly and and then you know related to that you'd have one of the strongest balance sheet to know where all the time current environment chain here thinking at all around and an a. opportunities.
Let me let me.
After that Katie.
First of all on that on the buyback as as I setting Shana I were approach to Canada location as remain the same for the last several years and it's not changing now.
Mine here, we talking about that just the authorization right and and when you look at what actually resolves at the end of any court and you see how much we actually doing sounds so chevy purchases.
50 billion is in addition to over 40 billion that he stated remaining from the past <unk> and that we received from I was bored <unk> total available or outstanding intensive authorization. These over 90 and as you look at our Ronald rate you end up.
Seven yes, you know that you know in Daddy's Betty adequate amount and as you know we would provide ambition I'll update a year from now so nothing really s. change that and nothing has changed on our approach for N.A., we being quite active over the last Saturday.
Yes, we purchase a company's on our very regular basis would always looking for ways to accelerate our product roadmaps or feel gas you know portfolio.
Both on the hardware side on the software side on the services side. So we we will continue to do that and and so also on the <unk>.
Nothing has changed.
Thank you well. Thank you. Thanks K. can we have the next question. Please.
Oh, well come from commented Gary Nani whatever core.
Oh, yeah. Thanks to take my question I have two as well I guess for stuff on the channel inventory I was hoping if you could talk about how to challenge channel inventory look like in a march quite a bit of it sounds like maybe below the historical ranges and then the discussion you had put Judith quarter performance of I phones, <unk> embedding from a channel.
Building documentary that looks a lot, though in that expectation.
A bit it's tell EM, if you look at the I phone channel Lindman Tory during two to the reduction of it was more than the reduction from the previous year. It's not unusual that we reduced and include two and in fact, if you look back the on generally.
Speaking.
In the the first half of the calendar year.
We reduce chandler inventories during the second half of the calendar year, we generally raise channel laboratories, that's seasonal thing and I I believe I'm sitting here today I believe that will happen. This year is while.
Hopefully that answers your question and but by the way we ended in a comfortable position. So you could could could conclude from that that we were that with it but then a target range.
[laughter] that's really helpful.
They just follow up chemotherapy, you could maybe talk a little bit about how do you think about Apple's manufacturing strategy and perhaps me for some diversity or especially given everything the company that was gone for the last 12 months. How do you think about that and good do you feel comfortable that the supply chain of the manufacturing base as well situated today to launch.
The traditional fall products that they use to get it from Apple.
As you know our our supply chain is is global and so our products are truly made everywhere.
And <unk> I I would focus on that versus focus on one element of the manufacturing process, which tends to get more visibility, which is the final assembly. We have some final assembly in the United States, We have final assembly in China as well.
Yeah, I think you'd have to conclude or at least I conclude that if you look at the shock to those supply chain that took place this quarter for it to come back up so quickly.
Really demonstrates that it's durable and and resilient and so I I feel.
Good about where we are that said, we're always looking at at tweaks and it's just not something we talk about because it really view it as confidential and competitive information.
And so we will look at the as we get out of this totally we will look to see what we learned and and what what we should change.
Mm.
Thank you I'm. It can we have the next question. Please.
Well here from Charlie <unk> twice your bank.
Hi, guys think children, Yeah, a couple of questions. So I want to focus their the the the question on services.
Segment was solid in the corridor on Spike <unk>, yes, I can kind of see logic behind it being strong despite probably since overall.
You have looked at the rest of the year do you think that sustains or at some point the macro impacts a worldwide impact the services line.
Dirty Let me, let me take that one.
We typically don't give it a lot of specifics about about an hour categories, but I've said as we look into the June Florida, we see two distinct trends in in in in our services business overall.
Ecosystem is very strong our customers are banning gay we are continuing to grow double digits. The number of tranzact their accounts and paid accounts and so we expect I with digital services to continue at the same level of performance that we have seen.
You into my score and that includes the App store of course.
Our video business on music business.
Cloud services. So we expect all these businesses that once you know to grow very strongly.
Odd given the overall economic environment and level of the mind right. Now there are two businesses that we believe are going to be impacted during the June quarter. One of them is applecare applecare.
Is essentially a comprised of our product pre pay a business.
And the water until agreements that we sang we know what cost so much when they purchase our devices.
Both these businesses have been affected all just city by the store closures and not only our retail stores, but also I what partners point so sale.
And and obviously they used to have <unk> because of the social distancing measures right and we do expect.
Apple Kids can be affected you into your individual important yeah, the business, which.
We think is going to be impacted.
By you have it all economic we weakness Andy and the uncertainty on when businesses. We reopen is advertising, which is no disarm off.
Or advertising business on the App store on Apple News and the two party agreements that we have on the advertising front. So these are two things that during the June Florida will create a headwind for the for the services business.
God I appreciate that my second question comes about about the overall purchasing fitting thing junior to making so far.
Have you seen increase perhaps downticks across her potlines or for example, somebody might you know a shit maybe two here. It's the lower end of the storage mix that certain products and do you expect that going forward ads, you know unemployment check and macklin tax kinda layer on through the rest of 20.
Thanks.
I have it seems what you're what you're asking no I I have seen a strong customer response to I phone F.C.
Which is our most affordable I phone, but it it appears that those customers are primarily coming from.
Wanting a smaller form factor with the latest technology or coming coming over format from Android.
And so those are the two.
Principal kind of of segments versus somebody buying down as you were talking about we've also seen we launched the I pad pro in the midst of all of those and the reception. There has also been incredibly good and that's obviously our top of the line.
I pad.
And so I'm not seeing what you're <unk>.
What you're alluding to at least at this point.
Thanks stereo commands the next thanks guys.
That will be from J.P. Morgan Hi, Chatterji.
Hi, Thanks. So it can question. So if I can just talk with a question on kind of what you're seeing and try now you mentioned kind of the pickup inactivity, but is that even by more than a foot falling the school. So what you're seeing ran into online activity and how much up this company industry Kevin online.
<unk>.
Yeah, what we saw what we saw in China for the full quarter and I'll I'll speak about mainland China, because I think that's a source of your question.
We saw strong results in I pad.
In Wearables.
And in services.
And if you look up underneath the the full Porter, we saw strong January.
And then a significantly reduce demand in February as the the shelter in place orders and the Lockdowns went into effect in China and the stores closed and then in March as stores reopened.
We the recovery began and then be seeing further recovery and in April.
Where that goes.
Well, we will see but that that's kind of what we've seen so far there to your to your question about store traffic.
Sort traffic is obviously up from where it was in February but it is not back to where it was a pre pre the lock down there has been however.
More move to online.
And as as I'd mentioned earlier in my remarks, the it it's pretty phenomenal actually retail had a quarterly record for us during the quarter and that's despite stores being closed for the for the for the three week period around the world.
X., China in China was closed prior prior to that three weeks and part that's partly because of the online store had such a phenomenal.
Quarter and that included in China, but it was all some other regions is while.
There, there's definitely a move and whether that say permanent shift.
I would would hesitate to go that far is I I think people like to be out and about they they just know that that now it's not the time to.
To do that.
<unk> Oh can I can just follow up on your previous comment about eight strong demand you're seeing for I phone S.E. just given the price point I'm wondering if you're expecting any change in terms of beat geographic mix up where the demand comes from relative to typically what do you see for although I phones from the light.
I'll just give them before price point.
I think it plays in every G.O., but I would expect to see it doing it even better in areas, where the median incomes are lost.
And so we'll we'll see how that plays out and and and I expect you know some fair number of people switching over.
To Iowa Us and so it's it's an unbelievable offer it's if you if you will the engine.
Of our top phones in a very affordable package.
And I I think it and it's faster than the fastest Android phones and so it it's an exceptional value.
Thank you can we have the next question. Please.
Certainly our last question today will be from Chris Castle with Raymond James.
Yes. Thank you I wanted to follow up with it another question on on I phone S.C. and the decision to bring it back and where it sits within the total I phone strategy <unk> and it gets coupled with the fact that I phone 11, you made the decision and bring down lower price point, what well what does that <unk>.
With respect to your approach to I phone pricing and flexibility there is this.
Helping to add users and kind of bringing people into the ecosystem and it's so what does that imply for gross margins.
We've always been about delivering the the best product.
At a.
A good price and that fundamental strategy has not changed at all as you know we did have an S.C. for a while it's great to to bring it back it was a beloved product and and so I wouldn't read anything into that.
Other than we we want to give people the best deal that we can.
While making the best product.
Okay has has a follow up a couple of question is on on commodity pricing and I think you have expected to see some commodity price declines through the March quarter, If you could talk about.
What you expect they should go through the year, perhaps in in this new environment and and again, whether that turned into a calendar I had when for the rest margins as you're going from second hand, Yeah for March Chris We sold Nan pricing increase slightly.
While DRAM and displays and the other commodities declined.
For the June quarter, we would expect Nana DRAM pricing to remain at this historically low level.
While displays in most other commodity prices, we expect to decline.
Thank you Yep. Thank you Chris.
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