Apple Stock Jumps 7% After Earnings Respond Strongly to Supply Constraints with Record iPhone Sales

Consumer electronics giant Apple reported better than expected EPS and revenue December quarter earnings Thursday. iPhone revenue, boosted by the launch of iPhone 13, climbed 9% yr/yr to an all-time record of $71.6 bln, despite supply constraints. The biggest growth category was Mac with revenue up 25% yr/yr to $10.9 bln, also an all-time record amongst a supply crisis. $AAPL stock rose to $170.33 up 11.11 or 6.98% after the release.

iPhone 13

Apple (NASDAQ: $AAPL) Reported Earnings After Close Thursday

 $2.10 Beat $1.90 EPS Forecast AND $123.90 Beat $119.10 Billion Forecast in Revenue 

Q1 2022 fiscal earnings release: 4:30 p.m.; conference call: 5 p.m.

With the NASDAQ and technology stocks being pummeled in 2022 all eyes were on Apples’ earnings. Bulls’ hopes lay with Apple delivering and deliver they did. After a rough fiscal Q4 AAPL bounced back with upside surprises in Q1 (December) in both EPS and revenue. In the December quarter, net profit came in at $34.6 billion or $2.10 per share from $28.8 billion or $1.68 per share in the first quarter of 2021. It was above Wall Street’s expectations. What got the market excited was Apple’s hopeful commentary on supply constraints. Just the evening before, despite record profits for Tesla the stock sold off 10% after CEO Elon Musk’s cautionary words on the supply chain.

Earnings Highlights

  • Solid beats on EPS and revenue, a big improvement from SepQ’s in-line EPS result where CEO Cook warned of a negative $6 billion affect from the supply chain impacting supplies.
  • iPhone, Mac, and Wearable’s sales all exceeded analyst expectations. 
  • iPad results, however, fell short. Demand remains robust, but that product faced the most severe component shortages.
  • Services revenue continued to grow
  • Greater China revenues rose 21% from last year’s pandemic recovery period to $25.78 billion

iPhone Sales

iPhone sales were boosted by the launch of iPhone 13 with revenue rising 9% yr/yr to an all-time record of $71.6 bln, despite supply constraints.

Ahead of the report market tracking data from Counterpoint Research said Apple was the top-selling smartphone vendor in China, which is the world’s biggest handset market, over the three months ending in December. Sales boosted by a post-pandemic rebound in demand and the release of iPhone 13 earlier in the autumn. Apple launched its new iPhone 13 in late September with a base price of $799, while unveiling higher-priced versions including the iPhone 13 Pro and iPhone 13 Max.

Apple’s smartphone market share, Counterpoint said, reached a record high 23% as unit sales rose 32% from the year-prior period.

Mac

Mac revenue was the biggest growth category, rising 25% yr/yr to $10.9 bln to an all-time record, again despite supply constraints. Apple reports strong demand for its newly redesigned MacBook Pro. Apple is now one year into its transition to Apple silicon, and already the vast majority of Mac sales are from M1-powered devices.

iPad

iPad was the main segment having problems. iPads sales fell 14% yr/yr to $7.25 bln due to significant supply constraints. For perspective iPad is by far Apple’s smallest category at 6% of total sales whereas iPhone, meanwhile, accounts for 58% of sales.

Services

Overall services revenues rose 23.9% to $19.52 billion topping Wall Street expectations of $18.6 billion. The company’s installed base of devices topped 1.88 billion in use, up 300 million from two years ago. The company has 785 million paid Apple and third-party subscriptions on its platform, up from 745 million in the previous quarter.

The services category grew 24% from a year earlier on strong App Store, Apple Music and iCloud subscription sales. Apple said this month that developers generated around $60 billion from the App Store during 2021, but it didn’t share specific App Store revenue for the company.

Turning to services. As I mentioned, we reached an all-time revenue record of $19.5 billion, up 24% with all-time records for cloud services, for music, video, advertising and payment services and a December quarter record for the App Store. These impressive results reflect the positive momentum we are seeing on many fronts. First, as I mentioned before, our installed base has continued to grow and has reached an all time high across each geographic segment and major product category.

Luca Maestri — Senior Vice President and Chief Financial Officer

Wearables Home and Accessories

The wearables, home and accessories division includes the Apple Watch, Apple TV, AirPods, Beats headphones and the HomePod.   The segment sales rose 13.3% to $14.7 billion.

Wearables Home and Accessories meanwhile set an all-time revenue record. Customers are loving the Apple Watch Series 7 with its cutting edge health and fitness tracking features nearly every day I get notes from customers, who share how a heart alert led to a lifesaving appointment with the cardiologists. And more recently, I’ve been hearing from people who tell me that their Apple Watch save their lives by calling 911 when they couldn’t. As I’ve said, we’re still in the early innings with our health work, but every day I am encouraged by our positive impact.

Tim Cook — Chief Executive Officer

Supply Constraints

Apple has been one of the few companies upfront about supply constraints, so their impact does not come as a big shock. Apple warned about component shortages on its earnings call back in late July, expecting the constraints to primarily impact iPhone and iPad. AAPL followed up in the SepQ call in October saying constraints would cause a larger hit to DecQ revs than the $6 bln experienced in SepQ. Moving forward.

What saw buyers get back in AAPL today was Apple now expecting fewer supply constraints in MarQ than it had in DecQ. Demand remains robust across the board, and iPhone 13 sales were strong. The timing of the shortage hit Apple as it was around the launch of iPhone 13 lineup as well as the Apple Watch Series 7, new iPad, and iPad mini, all of which represent significant advances.

It wasn’t just Tesla, Intel (INTC) had also warned with it’s timeline for supply constraint and expects ecosystem constraints to persist through 2022 and into 2023. Apple’s outlook was also good news for Apple suppliers including like SWKS, QRVO, CRUS, AVGO, TSM, QCOM, SMH, LPL, LITE, FNSR, and IIVI. We watch in these companies’ outlook when they report.

Outlook

“As expected, in the aggregate, we experienced supply constraints that were higher than the September quarter,” CEO Tim Cook told investors on a conference call late Thursday. “This is our eighth quarter reporting results in the shadow of the pandemic. And while I can’t say it gets any easier, I can say I’m incredibly proud of the way our teams have come together and continue to innovate on behalf of our customers.”

Analyst Reactions

Canaccord Genuity analyst T. Michael Walkle

“Despite the component shortages, the company continues to demonstrate the strength of its product ecosystem with broad-based growth across its lineup,” said Walkley, who carries a ‘buy” rating with a $200 price target on Apple stock.

“iPhone sales remained strong across all regions with 9% YoY revenue growth versus our 7% estimate,” he added. “We believe Apple is well-positioned to continue to benefit from the 5G upgrade cycle and anticipate strong overall growth trends as 5G smartphones ramp and its installed base expands with higher-margins services revenue.”

Bernstein analyst Toni Sacconaghi

“Supply-demand was largely in balance by quarter end, and China shipments were strong,” Sacconaghi said in a note before the results were released.

Source: Apple, AlphaStreet

Live from the Pit

From The TradersCommunity Research Desk

Leave a Reply

Your email address will not be published. Required fields are marked *