This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses and sectors. For other articles and earlier versions, go here.
The COVID-19 pandemic ushered in a more digital world, giving new life to Apple Inc.’s sleepier product categories and positioning the company to capitalize on improving spending if the economy rebounds in the next year.
Despite store closures, supply-chain disruptions, and strained finances for many customers, Apple
proved one of the biggest winners in the first year of the pandemic as it posted a record fiscal year and saw its stock nearly double. Now with its U.S. stores back open and the job market poised to recover, analysts expect that Apple could work past its pandemic-related challenges while continuing to benefit from increased reliance on technology.
Though Apple’s story has revolved around the iPhone for years, the company’s Macs and iPads became especially critical to people adjusting to remote work and remote learning during the pandemic. The Mac business had been essentially flat from fiscal 2017 to 2019, but rebounded sharply during the COVID-19 crisis, with each of the last three quarters sporting revenue growth of more than 20% amid increasing demand for new personal computers.
Apple’s $9.03 billion in Mac revenue during the September quarter became a new company record as families prepared for even more schooling centered on the home.
Amid growing demand for personal computers, Apple jazzed up its offerings with the November rollout of new MacBook Air, MacBook Pro, and Mac mini computers that are the first to feature Apple’s custom-designed M1 chip, which promises performance improvements. The company pointed to strong demand for these new models on Apple’s latest earnings call, with Chief Executive Tim Cook remarking that the new custom chip “gives us a new growth trajectory that we haven’t had in the past.”
The iPad business saw its own revival, growing revenue by upwards of 31% in each of the past three quarters, led by a 46% increase in the back-to-school September quarter.
A move toward hybrid workforces should continue to benefit Apple, D.A. Davidson analyst Tom Forte told MarketWatch, as it means “sustained high demand” for Apple products like Macs and iPads.
Strong pandemic-driven sales mean that those categories will have trouble fully matching their 2020 momentum going forward, with analysts tracked by FactSet calling for both to post at least three quarters in a row of declining year-over-year revenue beginning with the June quarter.
iPhone could benefit from 5G maturation
On an overall basis, however, the company is projected to grow revenue by 22% for the full fiscal year, driven by a resurgent iPhone business. Moderating growth in Macs and iPads probably won’t matter much for Apple’s valuation, while strength in iPhones would be a key focus.
The pandemic created an interesting dynamic for the iPhone as Apple launched its first 5G lineup late last year. Paradoxically, though 5G was the key selling point of the iPhone 12 family, people had fewer chances to test out the new wireless standard on their new phones, and Forte said that was probably good news for Apple.
“The experience for many became using a new smartphone with a faster processor on home WiFi rather than on an undeveloped 5G network,” he said. There “may have been more risk of frustrated customers” had more people been relying extensively on 5G outside the home, only to discover that the new networks offered little in the way of speed benefits.
In-depth reporting: Will 5G ever live up to the hype?
Apple released its new iPhone models later than usual, with two out in late October and two in November, though the company still posted a record quarter of iPhone sales in the holiday period. Analysts say this part of the business could see further success as the economy improves.
“A thousand-dollar phone is a lot more expensive to many today than it was pre-March 2020,” Wedbush analyst Daniel Ives told MarketWatch, given the backdrop of layoffs. “As you start to see job growth return and more money in the pockets of consumers, that’s going to be beneficial for discretionary items like iPhones.”
He estimates that 10% to 15% of iPhone demand was wiped out due to a lack of in-store interaction and strained consumer finances but predicts stronger demand for the remainder of the iPhone 12 cycle and into the expected iPhone 13 launch later this year.
Services stand to benefit from age
Improved consumer confidence and growing device sales could bode well for Apple’s services segment, Ives said. Services and the iPhone are “the heart and lungs” of the company, he argued, so a greater appreciation for these parts of the business are key to sending Apple’s stock higher and helping Apple achieve what he sees as perhaps a $3 trillion valuation by the end of this year.
Apple was late to the game with its Apple TV+ streaming service and its Fitness+ subscription exercise service, but Lopez Research principal analyst Maribel Lopez said that Apple probably got “a lot more play on their content than they would have if not for COVID.”
The key will be keeping those new users as life returns to normal, especially as TV+ has a smaller library of original shows than other streaming services and suffered from production halts last year like other media businesses.
Apple executives have also called out some pressure to Apple Care insurance policies, though this element of the services business could rally now that Apple has reopened all of its U.S. stores in some capacity. “With consumers buying their devices online, attachment rates for things like Apple Care suffered,” Forte said. Add-ons like Apple Care are things that salespeople can pitch but that consumers might ignore when making a purchase online.
Then there’s the question of the Apple intangibles. The company “typically had not been known as [having] an out-of-the-building, work-from-home engineering culture,” Lopez said, and she speculated that the company may have been able to roll out its custom-chip architecture or other design initiatives more quickly if not for disruptions to office life.