Apple's iPhone sales fell as the coronavirus struck

Apple said revenue in the second quarter totaled $58.3 billion. iPhone revenue was $29 billion, down from $31 billion a year ago. Profits fell 2.7% to $11.3 billion.

"Despite covid-19's unprecedented global impact, we're proud to report that Apple grew for the quarter," said Tim Cook, Apple's CEO.

Apple's stock dipped 2% in after-hours trading, after rising 2% earlier in the day. While the report was positive under the circumstances, Apple injected some uncertainty by holding back guidance for the following quarter.

Cook painted a rosy picture of the company's ability to pump out new products, despite the virus, touting its launch of updated iPads, MacBook Airs and the iPhone SE, and said the company's production was back up to typical levels by the end of February.

But that optimistic outlook only told half the story. Cook didn't say whether its flagship iPhone, initially expected to launch this fall, would be on time or whether it would include 5G, the next-generation wireless technology competitors have already implemented.

"There's not one person on earth who was expecting good news from Apple when they reported, but it's the degree of the economic abyss," said Dan Ives, an analyst with Wedbush Securities. "Apple and iPhone are just a core bellwether for consumer spending and demand, especially on technology purchases."

Apple was exposed to the ravages of the novel coronavirus earlier than some of its technology industry peers, such as Google, Facebook and Microsoft. The virus cut off Apple's vast and sinuous networks of suppliers and contract manufacturers in China and shuttered its stores there, preventing its customers from touching and feeling its products before they buy.

On Feb. 17, Apple warned investors that it would fail to meet its revenue guidance for the second quarter, largely because of supply chain disruptions and a drop in demand in China because of Coronavirus.

That announcement didn't deeply spook investors, but things have gotten progressively worse, as the coronavirus has spread around the world and with unparalleled deadliness in the United States, Apple's core market. On March 13, Apple said it would shutter its hundreds of U.S. retail stores for two weeks. That was seven weeks ago, and there's no telling when they'll all reopen.

On Thursday, Wall Street analysts expected, on average, that Apple would bring in $54.54 billion in revenue during the March quarter.

The good news for Apple investors is that, while sales of phones might be down, nothing about the coronavirus has weakened the lock Apple has over its customers. Apple's launch of the iPhone SE, which starts at $400, should help the company hold onto cash strapped customers during one of the worst economic crises in history.

"Now they've made it a bit harder for people to just look at Android that offers more price points," said Carolina Milanesi, an analyst at market research firm Creative Strategies.

Hardware aside, Apple's push to diversify into services has gotten a boost from the coronavirus. Apple's services revenue shot up 17%, to $13 billion, constituting 23% of the company's revenue. Much of that revenue comes from recurring fees that Apple charges its customers, for things like photo storage, AppleCare and music streaming. 

According to Sensor Tower, which tracks the mobile app industry, the number of new app downloads on iPads saw the first year-over-year growth since 2013. Sensor Tower says users spent $2 billion on iPad apps during the quarter, the first time it hit that level.

It also takes a hefty cut of all purchases on the App Store and a percentage of all Apple Pay sales. That customer base continues to grow, the company says, with a growing "installed base" of 1.5 billion devices.

As Thursday's earnings report showed, it's not easy for customers to get out of those monthly charges, even during the worst economic downturn many of them have experienced, and that's a good thing for Apple investors. "Services, that's Teflon," Ives said.

Some in the global supply chain industry were eagerly awaiting Apple's earnings report in hopes that it would provide some guidance on how to proceed with manufacturing in China. "I cannot remember a more anticipated or anxiously awaited earnings call," said Ron Keith, founder of the Supply Chain Resources Group, which helps consumer electronics companies build devices in places like China.

Keith, for instance, said that rosy projections from Apple would provide some justification in taking a more aggressive approach in China, pushing suppliers to get key components more quickly. "They're thought of as a very big barometer," he said of Apple.

Apple didn't say whether it thought things would get better next quarter, only that once it's over, "the ending will be a good one," Cook said.

He also expressed confidence in the global supply chain as it stands, despite criticism from some that Apple has become too reliant on China to assemble its products and produce many of the components. "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. So I feel good about where we are," Cook said.