Covid-19 supply chain disruptions to China affect iPhone sales, but the company does not lay off large numbers of employees.Apple posted a decline in quarterly revenues for the first time in three-and-a-half years after “significant” supply chain disruptions in China delayed deliveries of iPhones during the important holiday period.
Apple’s dependence upon China for manufacturing was highlighted by the worse-than-expected performance. This happened after high-end iPhones were affected by Covid-19 in Zhengzhou, at an assembly facility run by Foxconn.
Chief executive Tim Cook indicated that revenue in the first three months this year would also be lower than the previous year, even though iPhone sales were anticipated to “accelerate”, which means that sales of Apple’s other products will be severely affected by lower demand.
Apple reported total revenues of $117.2bn in the most recent quarter. This is a decrease of 5.5% compared to 2021, and lower than analyst estimates of $121.1bn. The net profits of $30bn, which were 13.4% lower than the previous quarter and slightly below expectations, was also 13.4% lower.
Cook stated that “in total, we expect our march quarter year-over–year revenue performance will be similar to the December quarter,” adding that iPad and Mac sales would likely fall by double digits due to a “challenging economic environment.”
After-hours trading saw Apple shares fall by over 3 percent
Apple’s revenue decline was due to Amazon and Alphabet pointing out further weakness in their core markets during the most recent quarter. The earnings reports of three of the largest companies in the world provided an alert for investors. This came a day after the better than expected results of Meta, Facebook’s owner, fueled a sharp rally.
As big customers sought ways to cut costs on cloud spending, revenue growth has slowed and earnings have stagnated at Amazon Web Services.
Alphabet’s revenues fell below expectations. This was partly due to the strength in the US dollar and comparisons to the year prior’s soaring growth.
Cook stated that China supply chain issues affecting iPhone shipment had been resolved and added: “We are now at the point when production is what it needs to be.” We have now solved the problem.
He offered a grimmer assessment of Apple’s Mac computer sales, warning that while it was “well-positioned” in the PC market, “it will be a little rough for the short-term.”
Apple didn’t announce any job cuts or cost-cutting programs despite disappointing earnings and outlook. This marks it as the only large tech company that has not been subject to mass redundancies in a time where other companies are making significant headcount reductions.
Apple didn’t provide any forward guidance. This is something Apple hasn’t done in three years, owing to pandemic uncertainty.
Luca Maestri, chief financial officer, stated that Apple’s “active install base”, which is the total number of devices used by the company, had surpassed the 2bn threshold. This was up from 1.8bn a a year ago. He said that this is twice the number active devices we had seven years ago.
Maestri stated that iPhone sales would have increased in the third quarter if it weren’t for China’s supply chain problems.
Three months ago, Apple warned that a strong dollar could reduce revenue by up to 10 percent. This would be roughly equal to about $12bn. Actual impact was around 8 percentage points.
Maestri stated that eight per cent is a significant amount of revenue lost due to the strength and stability of the dollar. However, it’s still better than it was three years ago because the dollar has weakened.