Despite a second consecutive quarter of revenue decline, earnings are better than expectedApple’s iPhone shipments bounced back from supply chain disruptions in the holiday period, though revenue still declined year on year for the second quarter in a row due to what the company described as a “tougher” economic environment and currency headwinds.
Luca Maestri, Apple’s chief financial officer, said that Apple saw “significant acceleration of iPhone revenues from December to February”. Sales of the iPhone, which made up 54 percent of Apple’s total revenue in the first quarter, increased by 2 percent to $51.3bn. This was ahead of expectations of $48.9bn.
Investors were relieved to see the increase in sales after a outbreak at Foxconn’s “iPhone City”, which had halted production in November.
Tim Cook, the chief executive of Apple, said that Apple has made it through this “parade of horribles”. . . Between the pandemic, the shortage of chips and macroeconomic factors”. He continued: “The supply chains have been resilient, and we feel great about where we are and our plans.”
Total revenues dropped by 2.5 percent year-on-year to $94.8bn for the three months ending March. This was due to sharp drops in Mac computer and iPad sales. Net profits fell by 3.4 percent to $24.2bn. According to Refinitiv, analysts had forecast $93bn of revenue and $22.6bn of net profits.
Maestri attributed the 5.4 percent revenue drop to “significant headwinds” in foreign exchange. He said that revenues would have increased by 3 percent in constant currency.
Asia, excluding China, Japan and Korea, showed the most growth, with revenues increasing by 15.3 percent to $8.1bn. Cook reported that the group’s revenues had reached record levels in Mexico, Indonesia and Turkey.
Apple also has a push in India where Cook recently met with the Prime Minister and opened its first stores. Cook commented on the trip: “There’s a lot more people entering the middle class in India, and I feel like it’s at a turning point.”
Sales in China fell by about 3% and in the US, they dropped by about 8%. Maestri informed investors that the overall revenue growth would be similar to the March quarter. Inferring that sales will again shrink slightly compared to a year ago.
Apple’s services division has become a major driver of its revenue growth. The company now has almost twice as many paying subscribers worldwide for digital services such as music, movies, and iCloud Storage. According to Maestri who called Apple’s “economic motor” for the long-term, this was an increase by 150mn over the last 12 months.
The division’s revenue, which includes App Store fees and licensing, increased by 5.5 percent to $20,1bn. This was in line with expectations, but less than the 17 percent increase recorded last year. This division was responsible for 22% of Apple’s revenue. It had margins at 71 percent, compared to 36.7 percent for hardware.
Sales of Apple products were lower than they were a year earlier, except for the iPhone. Analysts had predicted a 25 percent decline in Mac sales, but the actual drop was 31 percent. As expected, iPad sales were down 13%, and wearables, including AirPods, the Apple Watch and Apple Watch Series 3, were also down 1%.
Dipanjan Chatterjee of Forrester said that these declines are “a sign of the steep climb consumer brands will have to face in the months to come as consumers become more wary about overextending themselves”.
He added, “The pandemic euphoria of spending is over.”
Cook was asked to comment on Apple’s artificial intelligence efforts, an area of growth where some observers feared it would fall behind Microsoft and Alphabet in their more public efforts.
He said that AI is “huge” in Apple’s future, and the company has made “enormous advances” in integrating AI and Machine Learning throughout its ecosystem.
“I think it is very important to approach these issues with deliberateness and thought.” Cook stated that there are a few issues to be resolved, and they’re being discussed in many different places.
Apple has announced that the board of directors approved the purchase of shares worth $90bn in the next 12 months. This was expected. According to S&P Global Market Intelligence, Apple has bought back nearly $600bn worth of shares in the last decade.
In after-hours trades on Thursday, the company’s stock, which had already risen by about a third in this year, grew another 2,4%.