Categories: Tech News

Apple dodges tech defeat, even as it warns of holiday slowdown

Apple Inc. offered enough good news in its quarterly report Thursday to avoid the fate of most tech giants this earnings season.

Apple Inc. offered enough good news in its quarterly report Thursday to avoid the fate of most tech giants this earnings season, when peers have seen valuations tumble by hundreds of billions of dollars.

Although sales of iPhones and services were softer than expected last quarter, Apple’s revenue and profit beat analysts’ estimates. The company said growth would not be as strong during the current period.

Investors found enough optimism to send shares up about half a percentage point in premarket trading in New York on Friday. Apple fell 3.1% to close at $144.80 in New York on Thursday.

That provided a stark contrast to Alphabet Inc.’s Amazon. com Inc., Meta Platforms Inc., Microsoft Corp. and others, which reported dismal earnings in recent days, sending their shares tumbling.

Even Apple’s generally positive results raised questions for investors, who are looking for signs that the long-resilient company could finally fall victim to a slowing economy. Sales of Apple’s iPhone and services fell well short of projections, prompting concerns about two areas that were expected to perform well. And Apple’s Mac business will decline substantially in the holiday quarter after a sales surge driven by new models, Chief Financial Officer Luca Maestri warned on a conference call.

With loyal customers still eager to get their hands on its expensive products, Apple has been seen as an outlier during a tech slowdown. The company also released its latest iPhone earlier in the year than usual, giving the fourth fiscal quarter a larger share of sales of Apple’s flagship device. But roaring inflation and a broader slowdown in consumer spending, particularly for personal devices, may still be weighing on the company.

The iPhone, Apple’s flagship device, generated about $42.6 billion in the fourth quarter, which ended Sept. 24, the company said. Analysts had estimated nearly $42.7 billion. Services, such as music and video streaming, contributed $19.2 billion. That was well below the projection of nearly $20 billion.

The stock had fallen 18% this year ahead of earnings, though that was a better performance than most major indexes. The S&P 500 has lost 20% in 2022, and the tech-heavy Nasdaq Composite is down 31%.

The Cupertino, California-based company did not provide a specific revenue forecast for the current quarter, continuing an approach it took at the start of the Covid-19 pandemic. But analysts estimate sales of about $128 billion, which would be an all-time record.

Apple’s global revenue grew 8.1% to about $90.1 billion in the fiscal fourth quarter. That beat the $88.6 billion estimate, due to better-than-expected growth in its Mac and wearables businesses. Earnings of $1.29 per share beat the average projection of $1.26.

Apple’s iPhone remains its biggest source of sales, and the company was expected to get a boost from an earlier launch this quarter. The period included about nine days of sales of the iPhone 14, iPhone 14 Pro and iPhone 14 Pro Max. But the iPhone 14 Plus, a new format that has received a lukewarm response from consumers, was not launched until the current quarter.

Although the iPhone 14 Pro looks similar to the previous two models, new features like a 48-megapixel rear camera and Dynamic Island interface have helped attract buyers.

The company’s services business includes its music streaming and TV+ platforms, as well as Apple Card, iCloud storage and other digital offerings. It’s considered one of Apple’s biggest sales drivers, especially as the company expands into new types of services.

Earlier this week, the company increased the prices of some services. Apple Music went up to $10.99 a month from $9.99, and TV+ went up to $6.99 a month from $4.99. Apple also modestly increased the prices of its Apple One service packages. The increases could further fuel revenue, though they also risk customers leaving rival services.

iPad sales, meanwhile, fell 13% to $7.17 billion last quarter, also missing expectations. The tablet saw a resurgence in sales in 2020 and 2021, helped by workers and students kitting out their home offices during the pandemic. Demand has since slowed, and the device has suffered supply chain hiccups over the past year.

Apple released a new iPad Air earlier this year, but didn’t come out with a new iPad Pro or an entry-level model until the current quarter.

Apple generated $11.5 billion from the Mac, easily beating estimates of $9.25 billion. This product line also enjoyed a pandemic hit, driven by the spread of hybrid work environments. But it also suffered a slowdown, with Mac sales missing estimates in the June quarter.

What Bloomberg Intelligence Says:

Apple’s slight increase in revenue in the fiscal 4Q, at a time when most big tech companies are struggling, shows a resilient business model.

–Anurag Rana, Senior BI Industry Analyst

The Mac rebounded in the fourth quarter, with sales setting a record for the period. The category was boosted by a redesigned MacBook Air and a new low-end 13-inch MacBook Pro, Apple’s two most popular computers.

On the call, Maestri said the Mac had a stronger-than-usual quarter in the holiday quarter last year due to the redesigned 14-inch and 16-inch MacBook Pros. These were Apple’s first high-end laptops built with its own processors, replacing chips from Intel Corp. This type of exchange will not be replicated this holiday period.

The company’s accessories, home and accessories segment, which includes the Apple Watch, AirPods, the TV set-top box, HomePod, Beats headphones and other accessories, also saw momentum last quarter. Apple earned $9.65 billion from these products, beating expectations.

In September, the company launched the Apple Watch Ultra and second-generation AirPods Pro headphones. A new Apple TV with a faster chip will go on sale in early November.

Apple signaled in its previous quarterly report that it would be more cautious about spending, part of a broader slowdown for Silicon Valley companies. Unlike other peers, Apple has avoided mass layoffs. But it plans to cut spending in 2023 and slow hiring, Bloomberg News reported. “Obviously, we’re being deliberate in our decisions about where to invest,” Chief Executive Tim Cook said in July.


Published by

Recent Posts

More on the Interest-Income Channel

Last weekend, I wrote about Warren Mosler's argument that the Fed's rate hikes could be…

4 weeks ago

More information in the Interests Channel

Last weekend, I he wrote on Warren Mosler's argument that the Fed's rate hikes could…

4 weeks ago

Biden wants to reduce the deficit. Powell wants to reduce inflation. Do rate hikes undermine both goals?

Last week, the chairman of the Fed, Jerome Powell said, "the disinflationary process has begun".…

1 month ago

Quick thoughts on the CBO budget and economic outlook

Earlier this week, I joined Romaine Bostick and Scarlet Fu Bloomberg TV. The Congressional Budget…

1 month ago

Eight states have joined forces to raise taxes on America’s wealthiest

Tomorrow morning, I'll be joining CNBC's Squawk Box to talk about a new effort tax…

1 month ago

Mike Pence would pick up where Paul Ryan left off

Former Vice President Mike Pence talks about privatizing Social Security. The remarks came Thursday before…

2 months ago