Apple’s First Quarter 2021 Earnings Set New Records Through Strong iPhone Comeback

Ramish Zafar
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Cupertino tech giant Apple Inc (NASDAQ:AAPL) has reported its financial earnings for the first quarter of the fiscal year 2021. The company earned $111 billion in revenue, $28 billion in Net Income and $1.68 in diluted earnings per share during the previous quarter. During its year-ago quarter, Apple had earned $92 billion in revenue, $22 billion in net income and $1.25 in diluted earnings per share. Therefore, today's results mark for 21% revenue growth and 35% EPS growth, through what Apple calls record revenues for multiple product categories including the iPhone.

Heading into today's earnings release, Wall Street analysts had expected Apple to pull in at least $103 billion in revenue and $1.41 in earnings per share. The results show that Apple has beaten these estimates as it makes a strong comeback following a tough year filled with supply chain disruptions. The first quarter generally lets investors gauge the performance of Apple's latest products as it marks the first full three months following a product launch and factors in the crucial holiday season that consumer electronics firms look forward to for propelling revenue and sales. Yet, given the delayed releases of some models of its latest iPhones, the impact from these smartphones might not be fully reflected in the numbers that Apple has posted today.

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Following Apple's first virtual iPhone launch in October last year, when the company launched four distinct smartphones, the devices did not follow a uniform availability schedule. The most expensive gadget of the four, the iPhone 12 Pro Max, only started to make its way into users' hands in mid-November, with pre-orders having opened earlier in the month. The lineup's bread and butter, the mid-sized iPhone 12, started to make its way into users' hands in late November, and the iPhone 12 Mini which surprised many with its strong demand, followed the larger Pro Max variant in pre-order and availability.

The quarter also marked the beginning of Apple's oft-reported shift to in-house silicon, as the company looks to rid itself os supply dependencies on Intel Corporation for notebook central processing units (CPUs) and tightly integrate its hardware and software on the notebook lineup, in an approach similar to its smartphones and tablets. The 2020 MacBook Pro and MacBook Air launched in mid-November, and as a result, their impact on Apple's top line figures will not be fully factored in until results for the current quarter are available - despite the holiday season has passed.

Apple Quarterly iPhone Revenue
Quarterly revenue in $ Billions
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Q1 2019
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Q1 2020
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Q1 2021

Accounts Payable Leave Ugly Blot On Otherwise Stellar Earnings Results

Apple's bread and butter, the iPhone brought in $65.6 billion in revenue during the company's December quarter, marking for 59% of total revenues. This marks for an increased revenue share for the iconic smartphone over Apple's previous quarter when the iPhone accounted for 40% of the company's revenue and a slight drop over the year-ago quarter when it accounted for 60% of Apple's revenue.

Yet, the iPhone's strong performance comes with a caveat. In its fourth quarter of FY 2020, Apple earned $26 billion through the lineup in a $7 billion drop that management attributed to channel delays. Once this drop is factored in, Apple's average iPhone revenues for Q1 FY 2021 and Q4 2020 turn out to be $45.5 billion. Compared to a similar figure for Q1 FY 2020 and Q4 FY 2019 of $43 billion, the stunning iPhone revenues during the previous quarter turn out to present a rather modest growth.

Breaking down revenues product-wise, Apple earned $8.7 billion, $8.4 billion, $12.9 billion and a record $15.8 billion through the Mac, iPad, Wearables and Services respectively. These figures mark year-over-year growth for all of the segments. Crucially, the Services revenue demonstrates that Tim Cook & Co.'s gamble on the segment and transforming Apple's business model has finally paid off. This growth, when combined with the iPhone's momentous revenue has brought Apple back from a tough year.

A look at the company's costs and inventory for the first quarter also provides some insight into how well Apple managed to meet its product expectations.  At the end of its fourth quarter of FY 2020, the company's product costs and inventory$40 billion and $4 billion respectively. Comparing these to the $67 billion costs and $4.9 billion in inventory at the end of the previous quarter reveals a natural uptick in costs for a product-laden quarter and modest growth in inventory respective to the massive revenues that Apple has brought in through the iPhone.

Yet, a staggering $64 billion in Accounts Payable have left a bitter taste in today's earnings results, showing that perhaps Apple's strong cash position isn't really as strong as some would believe. The stark contrast to $42 billion in payables at the end of September 2020 marks a 52% increase during the quarter.

Accounting for the product costs, inventory and other variables, Apple's operating cash flows in the first quarter stood at $38.8 billion, growing by more than $8 billion year-over-year and reflecting its strong performance in Services; a segment with relatively lower costs when compared to hardware products.

Following today's earnings release, shares of Apple Inc (NASDAQ:AAPL) dropped to $139 in aftermarket trading after having closed at $142.06 today. Since then, they are roughly at similar levels to the closing price, trading at $140.90 at 16:54 EST.

Commenting on today's results, Jesse Cohen of expressed optimism for Apple's earnings. "Apple delivered another blockbuster quarter. Its blowout results is a testament to the power of its revenue stream, helped by the robust sales of its newer phone models and the improving performance of its services business. Strong demand for the iPhone 12 clearly strengthens the argument that Apple shares are well-positioned to continue their march higher in 2021," stated the analyst.

Updated at 17:12 EST with comments about iPhone revenues in paragraph six.

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