Apple’s Q2 financial results weren’t quite the blood bath some had anticipated, and while the future remains uncertain there’s a few lessons there for enterprises attempting to navigate the current crisis.
What happened to Apple in Q2 FY20?
Apple revenues reached $58.3 billion. In other highlights, its installed base reached a record for active devices – above the 1.5 billion it revealed in 2019.
It saw double-digit growth and set new records in the installed base of iPhones, Macs, iPads and wearables, now has 515 million service subscribers and believes it’s on the way to 600 million by December.
As expected, product revenues fell 4% as economies contract in response to COVID-19. You can read Apple’s announcement of the results here, or dig a little deeper into the numbers.
So, what are the lessons?
1. Diversification is strength
Apple’s decision to grow its services segment paid off during the quarter, returning the highest-ever revenue, which helped defend the company against weakness in some of its markets.
The significance is pretty clear: if your enterprise can diversify revenue streams, then it really should. And services is a good business to be in.
Apple’s service revenues climbed 16% year-on-year and contributed more than $13 billion in revenues. Apple Music and cloud services both set records. Gross margins on services sit at 65%, the company said. Apple’s product range now fits on a larger table than it once did. Can your enterprise diversify its offering?
2. Build subscription income
As predicted several years ago, Apple’s decision to diversify into the creation of a subscription-based business has really helped.
Apple’s traditional product-driven revenue generation model was heavily reliant on producing hugely popular electronic devices, leaving the company exposed if economies contracted or consumer interest waned.
Apple already offers an Apple Card-based payment plan for iPhones and confirmed it’s “working on doing this for other products as well.” This makes sense. Subscription income is nicely predictable, even in crisis.
How can your company create its own subscription-based business?
3. It’s time to use your reserves
Apple seems to have dug into its reserve capital. The company has continuously held one of the largest reserves of cash among U.S. firms, and may have used some of this money in order to maintain its commitments to customers, partners and staff. Net cash (cash reserves minus debt) is now at $83 billion overall.
There’s nothing wrong with digging into reserves when you face an emergency.
That’s what rainy day funds are for.
4. Be business agile
During the Q2 20 fiscal call, CEO Tim Cook noted Apple’s, “unmatched capacity to be creative, to think always in terms of the long term, and to forge ahead when others may feel an instinct to pull back.”
The company had a lot of plans for the quarter, which Cook confirmed was expected to be a “prolific and energetic period.”
Apple handled many operational challenges: “For a company whose business is innovation, there are real upsides in periodically having to figure out how to do just about everything in a brand new way,” he said.
“If you look at the shock to the supply chain that took place this quarter, for it to come back up so quickly really demonstrates that it’s durable and resilient,” he noted later.
Digital transformation means every enterprise now exists in a state of constant change. The need to become business agile lends strength to any business in any industry in any situation.
5. Your customers are also resilient
Apple noted during the financial call that it is seeing some evidence customers now recognize the pandemic will continue for a while, and are making purchasing decisions designed to help them work from home more comfortably.
That means purchasing devices, and making much more use of FaceTime and Messages. Those services set new all-time records for daily volume in the quarter.
Apple also returned record results in its retail arm during the quarter, prompting Cook to observe that this was despite physical stores being closed. The company saw a “phenomenal” move to online sales.
Your consumers are already changing in response to the crisis. Is your business prepared to change to meet your customers where they are?
6. Remote working is here to stay
Cook observed that the move to working remotely has actually increased productivity among some of the company’s staff, while reducing it for others.
He also observed that people are becoming accustomed to working and learning remotely, and expects that trend to continue.
The message must be that rather than seeing remote working as a temporary business interruption, smart businesses will figure out how to streamline the experience in order to boost both enterprise productivity and employee autonomy.
7. Apple’s solutions may help manage change
As I often note, Apple is already in the enterprise. The company has created a host of content to help its enterprise customers manage the transition to working from home, including putting its own retail staff into more support-focused roles.
Partners including IBM, SAP and Jamf have helped enterprises deploy remote working solutions. One company, Peloton, was able to deploy an entire fleet of Macs overnight to enable its teams to work remotely.
In many cases, iPads, Macs and other Apple products may now be the most appropriate choice for your enterprise. Employee choice is also good for business.
8. Do the right thing
A global crisis of this kind inevitably changes things.
While the pressure to return to work continues to grow, it would be irresponsible to launch a second wave of death which (as with the Spanish flu) could dwarf the casualty rate we’ve already seen.
Doing the right thing in these circumstances means contributing to the communities you do business in, particularly if you want your customers to stick with you.
Apple has really engaged with this, even while managing the operational challenges of developing and introducing new products it has stretched many parts of its business to try to contribute to global response. “Apple’s contributions to the global response are significant, diverse and a great source of pride for the whole team,” said Cook.
That kind of collective pride makes enterprises agile, reduces employee churn, and makes a huge difference in your business relationships. It’s also the right thing to do.
9. Stay optimistic
Any enterprise facing significant business challenges may feel it’s appropriate to reduce activity while waiting for better times. That’s not Apple’s approach.
Cook puts it this way: “We’ve always managed through difficult moments by doubling down and investing in the next generation of innovation, and that’s our strategy today.”
Keep building and preparing your business for the next evolution.
Stay well.
Please explore these additional reports which I hope help you manage the current situation, and do get in touch if there are specific matters you’d like me to explore:
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