Apple Revenue and Profit Beat with Higher iPhone Sales and Gross Margins

Consumer electronics giant Apple reported better than expected EPS and revenue for the June quarter earnings Thursday. AAPL suffered an almost 11% decline in profit hurt by supply constraints and shutdowns in China. Despite this Apple’s biggest driver of revenue iPhone sales continued to grow despite economic challenges. iPhone revenue rose 2.8% to a fiscal third-quarter record of $40.67 billion, while analysts had expected a 2.5% drop. $AAPL stock rose by more than 3% in after-hours trading.

iPhone 13

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

 $1.20 Beat $1.16 EPS Forecast AND $83 Billion Beat $82.76 Billion Forecast in Revenue 

Q3 2022 fiscal earnings release: 4:30 p.m.; conference call: 5 p.m.

Earnings

Apple reported profit fell to $19.4 billion, the worst quarter since the July-through-September period in 2020 ahead of the 5G-capable iPhone launch. Earnings per share was $1.20 from $1.30 a year earlier. Analysts surveyed by FactSet, on average, predicted earnings per share of $1.16. Revenue rose 1.87% to a new fiscal third-quarter record of about $83 billion from $81 billion a year ago. Analysts had predicted a 1.7% rise to $82.76 billion.

Highlights

Apple Q3 22 Earnings

  • EPS: $1.20 (exp $1.16)
  • Revenue: $83.0B (exp $82.76B)
  • Products Revenue: $63.36B (exp $62.44B)
  • iPhone revenue: $40.7 billion versus $38.9 billion expected
  • iPad revenue: $7.22 billion billion versus $6.9 billion expected
  • Mac revenue: $7.4 billion billion versus $8.4 billion expected
  • Wearables revenue: $8.1 billion versus $8.8 billion expected
  • Services revenue: $19.6 billion billion versus $19.7 billion expected
  • Gross margin: 43.26% vs. 42.61% estimated 
  • Greater China region sales fell 1% from the same April-through-June period a year earlier. Analysts had expected an almost 7% decline.
  • Declare Cash Dividend Of $0.23/Share
  • Finished the previous fiscal year with 154,000 employees, according to a regulatory filing.
  • Apple said it spent over $28 billion on share buybacks and dividends during the quarter.
  • Expects Revenue Growth in Q4

“Our June quarter results continued to demonstrate our ability to manage our business effectively despite the challenging operating environment. We set a June quarter revenue record and our installed base of active devices reached an all-time high in every geographic segment and product category,” Apple CFO Luca Maestri said in a statement.

iPhone Sales

iPhone rose 2.8% to a fiscal third-quarter record of $40.67 billion, while analysts had expected a 2.5% drop.

“There is no obvious evidence in our data that there is macroeconomic effect on iPhone sales,” Mr. Cook said. “On iPad and Mac, frankly, we didn’t have enough data from a supply point of view to really test the demand.”

In late 2020 Apple introduced iPhones with 5G capabilities that were touted as offering faster internet speeds to improve gaming and downloads fueling a record fiscal 2021 profit of $94.7 billion. Analysts are predicting iPhone profit for fiscal 2022, which ends in September, will be near $100 billion after a strong first half.

Mac

Sales of iPad tablets, Mac computers and wearables were affected by supply constraints, Mr. Cook said. Mac revenue was $7.38 billion vs. $8.70 billion estimated, down 10% year-over-year Apple redesigned MacBook Pro. 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

iPad revenue was $7.22 billion vs. $6.94 billion estimated, down 2% year-over-year. 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 in Q3, jumped from $17.5 billion last year to $19.6 billion. Maestri also said that the company set all-time records for Apple Music, Apple Care, cloud services and payment services. The category grew to reach 860 million paid subscriptions on Apple’s platform, which is up from the 825 million it reported in its previous quarter. This figure is up more than 160 million in the last 12 months alone, Apple said.

“The record level of performance of our services portfolio during the June quarter reflects the strength of our ecosystem on many fronts,” Apple CFO Luca Maestri said on the company’s earnings call. “First, our install base has continued to grow, reaching an all time high across each geographic segment and major product category. We also saw increased customer engagement with our services during the quarter our transacting accounts, paid accounts and accounts with paid subscriptions. All grew double digits year over year and paid subscriptions showed very strong growth.”

Wearables Home and Accessories

The wearables, home and accessories division include the Apple Watch, Apple TV, AirPods, Beats headphones and the HomePod.   The segment sales were $8.1 billion versus $8.8 billion expected.

Apple is widely expected to launch its iPhone 14 line along with its Apple Watch Series 8 later this fall. And while that won’t have much impact on the company’s Q4 earnings since the products are announced just a few weeks before the quarter ends, it should boost its Q1 2023 performance.

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 said constraints that Apple 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 formal guidance for the quarter. Analysts expected the company to give fourth-quarter guidance of $1.31 in earnings per share and nearly $90 billion in sales. 

“In terms of an outlook in the aggregate, we expect revenue to accelerate in the September quarter despite seeing some pockets of softness,” Apple CEO Tim Cook told CNBC’s Steve Kovach. “We are seeing some pockets of softness here and there .. But in the aggregate, we expect revenue to accelerate in the September quarter as compared to the June year over year performance.”

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.

“We are making deliberate decisions about where to invest our money, but we’re continuing to hire, but we’re just doing it in a very deliberate way,” Mr. Cook said in the interview.

Apple rival Samsung Electronics Co., the world’s biggest maker of semiconductors, smartphones and televisions, on Thursday warned mobile and PC chip demand would continue to weaken as macroeconomic uncertainties persist. Shipments will be flat or experience minimal growth, the South Korean company said, after saying in April it expected growth. Semiconductor giant Intel stock plunged after another dismal earnings report and guidance cut reflecting a slump in personal-computer purchases and product delays.

Analyst Reactions

Morgan Stanley analyst Katy Huberty

“As we look to September, eyes are on FX [foreign-exchange] impact and any signs of a demand slowdown ahead of the iPhone 14 launch,” longtime Morgan Stanley analyst Katy Huberty wrote in her final note about Apple to investors, after being promoted to a new role.”

Source: Apple, AlphaStreet

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