Apple Revenue and Profit Beat but Impacted by High US Dollar

Consumer electronics giant Apple reported better than expected EPS and revenue for the September quarter earnings Thursday. Apple’s biggest driver of revenue iPhone sales however missed expectations of $42.63 billion vs. $43.21 billion forecast. The key services segment sales also missed with $19.19 billion vs. $20.10 billion estimated. $AAPL stock fell to 144.00 -0.80 or -0.55% in after-hours trading. Apple did not provide official guidance for its first fiscal quarter, which ends in December which contains Apple’s biggest sales season of the year. AAPL hasn’t provided guidance since 2020, citing uncertainty.

iPhone 13

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

Q4 2022 fiscal earnings release: 4:30 p.m.; conference call: 5 p.m.

Apple Q4 22 Earnings

Highlights

  • EPS $1.29 vs. $1.27 est.
  • Revenue. $90.15 billion vs. $88.90 billion estimated, up 8.1% year-over-year
  • iPhone revenue: $42.63 billion vs. $43.21 billion estimated, up 9.67% year-over-year
  • Mac revenue: $11.51 billion vs. $9.36 billion estimated, up 25.39% year-over-year
  • iPad revenue: $7.17 billion vs. $7.94 billion estimated, down 13.06% year-over-year
  • Other Products revenue: $9.65 billion vs. $9.17 billion estimated, up 9.85% year-over-year
  • Services revenue: $19.19 billion vs. $20.10 billion estimated, up 4.98% year-over-year
  • Gross margin: 42.3% vs. 42.1% estimated

“The foreign exchange headwinds were over 600 basis points for the quarter,” Cook told CNBC’s Steve Kovach. “So it was significant. We would have grown in double digits without the foreign exchange headwinds.”

iPhone Sales

iPhone revenue in Q4 was $42.63 billion vs. $43.21 billion estimated, up 9.67% year-over-year. Apple’s September quarter had 8 days of iPhone 14 sales, and analysts are closely looking for details about if Apple customers are trading up for more expensive models or if the new devices are poised to sustain higher sales through Apple’s fiscal 2023.  

Cook indicated that Apple’s performance in phone sales was strong despite signs that other smartphone companies are struggling with a recent decrease in demand and said the company grew “switchers,” or people who bought an Apple phone after having an Android device. He added that the company’s high-end phones, the iPhone 14 Pro, were supply constrained.

“We clearly countered the industry trends on the on the phone if you look at third party estimates of what the smartphone industry did,” Cook said.  

Mac

Mac sales were up over 25% to $11.51 billion, a big surprise as parts suppliers, chipmakers, and competing PC firms were pointing during the quarter to a significant slowdown in laptop and desktop sales.  

Sales of iPad tablets, Mac computers and wearables were affected by supply constraints, Mr. Cook said. Apple is now over one year into its transition to Apple silicon, and already the vast majority of Mac sales are from M1-powered devices.

iPad

Apple’s iPad, has been hampered by supply issues, decreased nearly 10% year-over-year. The company recently released new models in October, which could boost sales just after the September quarter finished. Cook said that it was a difficult comparison because last year, Apple released new iPads in September.

For perspective iPad is by far Apple’s smallest category at 6% of total sales whereas iPhone, meanwhile, accounts for 58% of sales.

Services

The business includes several different lines, including Apple’s online services like Apple Music and Apple TV+, revenue from the App Store, hardware warranties, and search deals with companies like Google.

Apple’s services business also missed estimates. Apple’s services business reported just under 5% growth during the quarter, a significant slowdown from last quarter, which was 12%.

For the fiscal year, Apple services grew just over 14% to $78.13 billion, a slower rate of growth than 2021′s 16% annual increase, and much slower than 2020′s 27% services growth.

Apple recently increased prices for Apple Music and Apple TV+, but the increases started during the December quarter. Cook said the price increases were “disconnected” from Apple’s services performance.

“Well, they’re in the if you look at the price increases as an example, Music, the licensing cost has increased,” Cook said.

Other Products: Wearables Home and Accessories

Apple’s Other Products category include wearables, home and accessories division include the Apple Watch, Apple TV, AirPods, Beats headphones and the HomePod.  

The segment saw an annual increase and beat Wall Street expectations. Apple’s wearables increased nearly 10% year-over-year to $9.65 billion. 

Supply Constraints

Apple has been one of the few companies upfront about supply constraints, so their impact does not come as a big shock. Mr. Cook had warned in April were “slightly less” than what was predicted. Apple had warned in April that Covid-related supply disruptions around Shanghai and silicon shortages would hit the company’s inventory and hinder sales by between $4 billion and $8 billion. Chief Financial Officer Luca Maestri also had warned that foreign-exchange rates and paused sales in Russia following the war in Ukraine would also limit growth.

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

Apple did not provide official guidance for its first fiscal quarter, which ends in December which contains Apple’s biggest sales season of the year. AAPL hasn’t provided guidance since 2020, citing uncertainty.

“We are hiring deliberately. And so we we’ve slowed the pace of hiring,” Cook said.  

Apple is said to be preparing to enter the AR/VR space with its own headset that will likely launch sometime in 2023. That could serve as the next major product for the company and open up broader opportunities for services and content sales.

Mr. Cook said the company is seeing inflationary costs in wages, logistics and certain silicon components.

Analyst Reactions

Source: Apple, AlphaStreet

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