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Apple Management Talks iPhone 11, Wearables, and Coronavirus

By Daniel Sparks - Feb 2, 2020 at 5:31PM

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CEO Tim Cook details two key catalysts and how the company is navigating the coronavirus outbreak.

The headline figures for Apple's (AAPL 0.17%) fiscal first quarter were impressive. iPhone revenue rose 8% year over year to $56 billion, helping drive the company's total top line to a record $91.8 billion -- a figure that both crushed analysts' average estimate and exceeded the high end of management's guidance range for the metric. Earnings per share also reached a record high, coming in at nearly $5 per share.

Of course, there's more for investors to digest in Apple's latest quarterly update than the company's better-than-expected top and bottom line. As investors look for more insight into the tech company's business, a great place to turn to is Apple's fiscal first-quarter earnings call. During the call, management discussed a range of important topics, three of which are highlighted here.

Six iPhone 11 devices being splashed by water

iPhone 11. Image source: Apple.

The iPhone 11 is a hit

While investors expected improving sales trends for Apple's iPhone during fiscal Q1, the extent of the improvement was surprising. Total iPhone revenue in the first three quarters of fiscal 2019 was down 15% year over year. Even in fiscal Q4, iPhone revenue was still declining significantly, sliding 9% year over year during the period.

But in the first quarter of fiscal 2019, iPhone revenue swung from a decline to 8% growth. This growth, Apple CEO Tim Cook said, was essentially fueled entirely by its newest iPhones.

"iPhone 11 was our top selling model every week during the December quarter, and the three new models [iPhone 11, 11 Pro, and 11 Pro Max] were our three most popular iPhones," said Apple CEO Tim Cook.

Wearables remains a key catalyst

Another segment worth a closer look is wearables, home, and accessories. More specifically, investors should look for insight into how Apple's wearables business, which is buried in this segment, is performing.

The overall wearables, home, and accessories segment saw revenue increase 37% year over year to $10 billion. But wearables, or sales of Apple Watch, AirPods, and Beats products, remained the segment's primary driver.

"If you look at ... wearables as a category within the Wearables, Home and Accessories revenue, wearables grew 44%" year over year, Cook said.

Also worth noting, Cook said the Apple Watch continues to draw new customers to the product lineup, with 75% of sales representing first-time customer purchases of the smartwatch.

How the coronavirus is affecting Apple

Finally, investors should take note of what management said about the coronavirus.

The company clearly thinks the outbreak in China could impact its results. "[W]e have a wider-than-usual revenue range for the second quarter due to the greater uncertainty," Cook said.

Apple guided for fiscal second-quarter revenue to be between $63 billion and $67 billion. That compares with revenue of $58 billion in the second quarter of fiscal 2019.

Of course, it's not surprising that Apple is planning for a potential impact from the virus. Not only is the tech giant dependent on some suppliers in the market, but a meaningful portion of sales come from its Greater China region. In fiscal Q1, for instance, the region represented 7% of sales.

Cook said the company is keeping an eye on the developing situation.

"We're also working very closely with our team and our partners in the affected areas, and we have limited travel to business-critical situations as of last week," he explained. "The situation is emerging, and we're still gathering lots of data points and monitoring it very closely."

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