Apple Sales Shrink as Pandemic Rally Ends for iPhone Maker, Other Tech Giants
Apple Inc.
AAPL 2.44%
reported disappointing quarterly results that ended its three-year streak of sales and profit records, capping an earnings season in which the world’s biggest technology companies mostly struggled to shake off a postpandemic hangover.
The iPhone maker announced its first quarterly revenue decline in nearly four years as manufacturing disruptions in China curbed its ability to deliver premium iPhones. Its results came the same day that Amazon.com Inc. reported growth that, while beating expectations, nonetheless concerned investors, because of slowdowns in its online shopping and cloud computing businesses, and Google parent
Alphabet Inc.
GOOG -3.29%
said it was hit by a broad slowdown in the digital ad market.
The results reflect how tech giants continue to struggle with wobbly consumer demand and weakness in business spending on areas like digital advertising—prompting company leaders to emphasize cost cutting and other measures to improve efficiency and stabilize their businesses.
The reports came a day after Facebook parent
Meta Platforms Inc.
issued results and guidance that—along with an expanded share-buyback plan—elated investors in a stock that was hammered last year. Meta’s stock soared 23% Thursday, its biggest one-day percentage gain since 2013, helping lift other tech shares.
Shares in Apple, Amazon and Alphabet gave back some or all of those increases in after-hours trading following their results. All three companies cited economic pressures as a challenge. Apple Chief Executive
Tim Cook
said in an interview that “the wind was in our face for the fourth quarter.”
For the holiday quarter ended in December, Apple’s revenue fell 5% to $117.2 billion, well below analyst estimates of $121.4 billion, according to FactSet. Net income dropped 13% to $30 billion, also lagging behind expectations.
“Instead of playing with tailwinds, they are playing with headwinds now,” said Trip Miller, managing partner at Gullane Capital Partners LLC, which is an investor in Apple, Amazon and Alphabet.
Investors welcomed Meta’s restructuring plans. Meta, Amazon, Google and Microsoft have all begun to eliminate jobs in response to the global economic slowdown.
So far, Apple has managed to avoid the layoffs rippling through the corporate ranks of its technology peers. The company hired at a slower pace during the pandemic. Over the past three years, Apple’s workforce grew about 20%, while competitors such as Meta and Amazon almost doubled their employee count in that same period.
Tech Layoffs: Amazon, Salesforce and More Cut Staffs
Mr. Cook said the company is managing costs very tightly and is curtailing hiring in certain areas, while continuing to hire in others.
“I view layoffs as a last-resort kind of thing,” Mr. Cook said. “You can never say never. We want to manage costs in other ways to the degree that we can.”
Mr. Cook said that in addition to manufacturing challenges, the economic climate played a role in the company’s results.
“We estimated that we would have grown on the iPhone absent the supply constraints,” Mr. Cook said in an interview.
The foreign exchange rate was also a challenge for the company, Mr. Cook said. Adjusted for currency fluctuations, company revenue grew, he said.
For the important holiday quarter, the company struggled to keep up with demand for its latest premium iPhone 14 Pro models as China’s zero-Covid policies caused upheaval at a smartphone factory in Zhengzhou. In November, Apple issued a rare warning about disruptions to output of the iPhone 14 Pro.
Apple has been able to get its supply chain back in order and increase its iPhone 14 production, and China has loosened its Covid-19 restrictions. Analysts now expect iPhone demand to be pushed to the current March quarter, but some have also expressed concern that Apple might face reduced demand for iPhones and other products.
“With supply-chain challenges largely normalized, we now believe [Apple] is entering a period of slower demand due to macro factors,” wrote
Krish Sankar,
a senior research analyst at investment bank Cowen, in a recent note to investors.
Overall consumer spending is also starting to sputter in the U.S., which could have an impact on the extent to which iPhone demand picks up in the March quarter, analysts said.
Sales in the company’s services business, which includes the App Store and streaming services such as Apple TV+, rose in the December quarter, with a 6% increase to $20.8 billion. Mr. Cook has sought to bolster the services unit as a way to strengthen the company’s earnings potential beyond iPhone sales.
Apple now has 2 billion active devices, a marker the company called “a significant milestone.” Mr. Cook said that international growth was strong for the quarter, including in Brazil, India, Indonesia, Thailand and Vietnam.
SHARE YOUR THOUGHTS
What new Apple products have you bought recently? Join the conversation below.
Global smartphone sales have fallen. Worldwide shipments suffered their largest-ever quarterly decline in the October-to-December period last year, falling 18% to about 300 million units, according to market-research firm International Data Corp. But Apple’s iPhone business declined the least among the top smartphone vendors, with iPhone shipments dropping nearly 15%.
In recent years, as Covid-19 forced closures of schools and sent millions of people home to work, demand for Apple products rose significantly. IPhone sales received a further lift as consumers upgraded their smartphones to gain ultrafast 5G wireless capability. For the fiscal year that ended in September, Apple reported a profit of almost $100 billion, a record for the company and the highest annual total in history for a U.S. corporation.
To date, Apple’s core business has also remained more resilient against broader market downturns compared with other tech giants, although last year the company wasn’t immune. For the September quarter, Apple said its services business grew 5% from the same period last year to $19.2 billion, the slowest growth rate for the segment since the company began breaking it out in its financial reporting in 2015.
Apple has slowed hiring in parts of the company and the company could reduce its workforce through attrition and by not filling roles of departed employees, analysts said.
The company is preparing to announce this spring a new product with a headset that combines augmented and virtual reality. With a higher price point, the device isn’t expected to be a big business at the outset and will have low initial production targets, according to analysts.
After Apple’s production difficulties late last year, Wall Street will also be looking at how the company diversifies its supply chain and addresses China. The supply-chain issues have spurred Apple to more aggressively look outside China to manufacture its hardware, The Wall Street Journal recently reported.
Write to Aaron Tilley at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Apple Inc.
AAPL 2.44%
reported disappointing quarterly results that ended its three-year streak of sales and profit records, capping an earnings season in which the world’s biggest technology companies mostly struggled to shake off a postpandemic hangover.
The iPhone maker announced its first quarterly revenue decline in nearly four years as manufacturing disruptions in China curbed its ability to deliver premium iPhones. Its results came the same day that Amazon.com Inc. reported growth that, while beating expectations, nonetheless concerned investors, because of slowdowns in its online shopping and cloud computing businesses, and Google parent
Alphabet Inc.
GOOG -3.29%
said it was hit by a broad slowdown in the digital ad market.
The results reflect how tech giants continue to struggle with wobbly consumer demand and weakness in business spending on areas like digital advertising—prompting company leaders to emphasize cost cutting and other measures to improve efficiency and stabilize their businesses.
The reports came a day after Facebook parent
Meta Platforms Inc.
issued results and guidance that—along with an expanded share-buyback plan—elated investors in a stock that was hammered last year. Meta’s stock soared 23% Thursday, its biggest one-day percentage gain since 2013, helping lift other tech shares.
Shares in Apple, Amazon and Alphabet gave back some or all of those increases in after-hours trading following their results. All three companies cited economic pressures as a challenge. Apple Chief Executive
Tim Cook
said in an interview that “the wind was in our face for the fourth quarter.”
For the holiday quarter ended in December, Apple’s revenue fell 5% to $117.2 billion, well below analyst estimates of $121.4 billion, according to FactSet. Net income dropped 13% to $30 billion, also lagging behind expectations.
“Instead of playing with tailwinds, they are playing with headwinds now,” said Trip Miller, managing partner at Gullane Capital Partners LLC, which is an investor in Apple, Amazon and Alphabet.
Investors welcomed Meta’s restructuring plans. Meta, Amazon, Google and Microsoft have all begun to eliminate jobs in response to the global economic slowdown.
So far, Apple has managed to avoid the layoffs rippling through the corporate ranks of its technology peers. The company hired at a slower pace during the pandemic. Over the past three years, Apple’s workforce grew about 20%, while competitors such as Meta and Amazon almost doubled their employee count in that same period.
Tech Layoffs: Amazon, Salesforce and More Cut Staffs
Mr. Cook said the company is managing costs very tightly and is curtailing hiring in certain areas, while continuing to hire in others.
“I view layoffs as a last-resort kind of thing,” Mr. Cook said. “You can never say never. We want to manage costs in other ways to the degree that we can.”
Mr. Cook said that in addition to manufacturing challenges, the economic climate played a role in the company’s results.
“We estimated that we would have grown on the iPhone absent the supply constraints,” Mr. Cook said in an interview.
The foreign exchange rate was also a challenge for the company, Mr. Cook said. Adjusted for currency fluctuations, company revenue grew, he said.
For the important holiday quarter, the company struggled to keep up with demand for its latest premium iPhone 14 Pro models as China’s zero-Covid policies caused upheaval at a smartphone factory in Zhengzhou. In November, Apple issued a rare warning about disruptions to output of the iPhone 14 Pro.
Apple has been able to get its supply chain back in order and increase its iPhone 14 production, and China has loosened its Covid-19 restrictions. Analysts now expect iPhone demand to be pushed to the current March quarter, but some have also expressed concern that Apple might face reduced demand for iPhones and other products.
“With supply-chain challenges largely normalized, we now believe [Apple] is entering a period of slower demand due to macro factors,” wrote
Krish Sankar,
a senior research analyst at investment bank Cowen, in a recent note to investors.
Overall consumer spending is also starting to sputter in the U.S., which could have an impact on the extent to which iPhone demand picks up in the March quarter, analysts said.
Sales in the company’s services business, which includes the App Store and streaming services such as Apple TV+, rose in the December quarter, with a 6% increase to $20.8 billion. Mr. Cook has sought to bolster the services unit as a way to strengthen the company’s earnings potential beyond iPhone sales.
Apple now has 2 billion active devices, a marker the company called “a significant milestone.” Mr. Cook said that international growth was strong for the quarter, including in Brazil, India, Indonesia, Thailand and Vietnam.
SHARE YOUR THOUGHTS
What new Apple products have you bought recently? Join the conversation below.
Global smartphone sales have fallen. Worldwide shipments suffered their largest-ever quarterly decline in the October-to-December period last year, falling 18% to about 300 million units, according to market-research firm International Data Corp. But Apple’s iPhone business declined the least among the top smartphone vendors, with iPhone shipments dropping nearly 15%.
In recent years, as Covid-19 forced closures of schools and sent millions of people home to work, demand for Apple products rose significantly. IPhone sales received a further lift as consumers upgraded their smartphones to gain ultrafast 5G wireless capability. For the fiscal year that ended in September, Apple reported a profit of almost $100 billion, a record for the company and the highest annual total in history for a U.S. corporation.
To date, Apple’s core business has also remained more resilient against broader market downturns compared with other tech giants, although last year the company wasn’t immune. For the September quarter, Apple said its services business grew 5% from the same period last year to $19.2 billion, the slowest growth rate for the segment since the company began breaking it out in its financial reporting in 2015.
Apple has slowed hiring in parts of the company and the company could reduce its workforce through attrition and by not filling roles of departed employees, analysts said.
The company is preparing to announce this spring a new product with a headset that combines augmented and virtual reality. With a higher price point, the device isn’t expected to be a big business at the outset and will have low initial production targets, according to analysts.
After Apple’s production difficulties late last year, Wall Street will also be looking at how the company diversifies its supply chain and addresses China. The supply-chain issues have spurred Apple to more aggressively look outside China to manufacture its hardware, The Wall Street Journal recently reported.
Write to Aaron Tilley at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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