Apple Inc. (AAPL) is a global technology company that designs, manufactures, and sells smartphones, personal computers, tablets, wearables and accessories. Some of its main products include the iPhone, the Mac line of personal computers and laptops, iPad, Apple Watch, and Apple TV. The company also has a fast-growing services business that includes its iCloud cloud service, and its digital content streaming services such as Apple Music and Apple TV+, the latter launched in November 2019.
Apple faces numerous competitors including smartphone manufacturers Samsung Electronics Co. Ltd. (005930) and LG Electronics Inc. (066570), computer manufacturers Lenovo Group Ltd. (0992) and Dell Technologies Inc. (DELL), streaming-content providers Spotify Technology S.A. (SPOT) and Netflix Inc. (NFLX), and other technology companies like Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), and Amazon.com Inc. (AMZN).
Key Takeaways
- Apple sells smartphones, personal computers, tablets, wearables and accessories, and services.
- iPhones are Apple’s biggest source of revenue by product, and the Americas is the largest revenue generator among its geographic regions.
- Apple’s services business generates the highest gross margins.
- Apple launched its new M1 microprocessing chip in November 2020.
Apple’s Financials
Apple posted net income of $28.8 billion on revenue of $111.4 billion in Q1 of its 2021 fiscal year (FY), the three-month period that ended December 26, 2020. Apple refers to revenue as net sales in its financial reports. Both net income and revenue rose compared to the year-ago quarter. Net income grew 29.3% as revenue climbed 21.4%.
Both Apple’s Products and Services businesses grew during the quarter. Revenue for the Products business rose 21.0% compared to the year-ago quarter, comprising about 86% of Apple’s total revenue. Among its products, iPhones comprised 59% of total revenue; Macs (8%); iPads (8%); and Wearables, Home and Accessories (12%). Services revenue grew 24.0% compared to the same quarter a year ago, comprising 14% of Apple’s total revenue.
Apple has mounted a major corporate strategy to reduce its dependence on lower-margin hardware products, which face slowing growth, while accelerating the growth of its Services business, which has higher margins and a more predictable, recurring revenue stream. Apple has introduced many new services in recent years, including Apple Arcade, Apple TV+, Apple News+, and Apple Card. The company now offers many of its services in one simple plan called Apple One.
The high margins in Apple’s Services business have continued to rise. Gross margin as a percentage of sales was 68.4% in Q1 FY 2021. Its annual gross margin in FY 2020 was 66.0% compared to 63.7% in FY 2019 and 60.8% in FY 2018. Gross margin as a percentage of sales for Products was 35.1% in Q1 FY 2021. It was 31.5% in FY 2020, down from 32.2% in FY 2019 and from 34.4% in FY 2018.
Apple’s Business Segments
Apple provides a breakdown of revenue and operating income for the following geographical segments: Americas; Europe; Greater China; Japan; and Rest of Asia Pacific.
While the U.S. is still the dominant market, Asia is rapidly catching up. In Q1 FY 2021, markets in China, Japan, and Asia Pacific contributed 37% of operating income and 34% of revenue. That makes the Asia region dramatically more important than Europe to Apple for growth and profits.
Americas
The Americas segment includes both North and South America. Revenue grew 11.9% in Q1 FY 2021 to $46.3 billion, comprising about 42% of Apple’s total revenue. Operating income grew 20.6% to $15.8 billion, comprising about 39% of the operating income for all segments.
Europe
The Europe segment includes European countries, as well as India, the Middle East and Africa. Revenue grew 17.3% in Q1 FY 2021 to $27.3 billion, comprising about 25% of Apple’s total revenue. Operating income grew 24.2% to $9.6 billion, comprising about 24% of combined operating income for all segments.
Greater China
The Greater China segment includes mainland China, Hong Kong, and Taiwan. Revenue rose 57.0% in Q1 FY 2021 to $21.3 billion, comprising about 19% of Apple’s total revenue. Operating income rose 59.1% to $8.5 billion, comprising about 21% of the combined operating income for all segments.
Japan
Revenue for the segment rose 33.1% in Q1 FY 2021 to $8.3 billion, comprising about 7% of Apple’s total revenue. Operating income rose 26.1% to $3.5 billion, comprising about 9% of the combined operating income for all segments.
Rest of Asia Pacific
The Rest of Asia Pacific segment includes Australia and those Asian countries not included in the company’s other reportable geographic segments. Revenue for the segment grew 11.5% in Q1 FY 2021 to $8.2 billion, comprising about 7% of Apple’s total revenue. Operating income grew 8.1% to $3.0 billion, comprising about 7% of the combined operating income for all segments.
A note to readers that the combined operating income used in the segment breakdowns above and in the pie charts was $40.4 billion in Q1 FY 2021. To arrive at Apple’s lower, reported consolidated operating income of $33.5 billion for the quarter, Apple makes deductions for research and development expenses and other corporate expenses.
Apple’s Recent Developments
On November 10, 2020, Apple announced the launch of its new M1 microprocessing chip designed specifically for its Mac computers. “M1 delivers up to 3.5x faster CPU performance, up to 6x faster GPU performance, and up to 15x faster machine learning, all while enabling battery life up to 2x longer than previous-generation Macs,” the company wrote in its press release. At the time of the announcement, Apple indicated that the new M1 chip would be available in the MacBook Air, 13-inch MacBook Pro, and Mac Mini. The company said that the full transition to the chip for all its systems would take about two years to complete.
How Apple Reports Diversity & Inclusiveness
As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Apple and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Apple releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.
Below is a table of potential diversity measurements. It shows whether Apple discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Apple breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and membership in the LGBTQ+ community.
| Apple Diversity & Inclusiveness Reporting | |||||
|---|---|---|---|---|---|
| Race | Gender | Ability | Veteran Status | Sexual Orientation | |
| Board of Directors | |||||
| C-Suite | |||||
| General Management | ✔ (U.S. Only) | ✔ | |||
| Employees | ✔ (U.S. Only) | ✔ | |||
