Apple remains the FAANG’s most resilient business. While other large technology firms (like an alphabet and Microsoft and Facebook) report gloomy news, Apple managed to set new records, increased the number of switches from Android to iPhone, but still slightly exceeded expectations.
The company reported its Q4 earnings late Thursday.
Decent results in a terrible week in tech
Overall, Apple’s quarterly results were decent in an otherwise terrible tech week. Total sales reached a new record of $90.1 billion, up 8% year over year for earnings of $1.29 per share.
Wall Street consensus expectations were hovering around 88.9 billion for $1.27 a share. (It is worth noting that grades from Morgan Stanley’s new Apple analyst Eric Woodring came the closest of all). Gross profits reached 42.3%.
However, the relative weakness in some segments speaks to the challenges we all face. “We are still living in unprecedented times,” said CEO Tim Cook, citing economic challenges, the war in Ukraine, COVID-19 and climate-related crises. “The world continues to be unpredictable.
On a year-over-year basis, revenue reached a new record of $394.3 billion, up 8%.
Despite the challenges, net sales increased in every region except Japan — with new records in India. Apple also increased revenue in every segment except the iPad, although the pace of growth in some areas appears to be reversing.
A strong dollar is not good everywhere
Looking ahead, company executives seemed as confident as anyone could be in such a torrid economic environment. “Earnings performance will slow in the December quarter,” they warned, citing currency fluctuations as one major barrier.
In a more stable currency environment, where currency challenges hadn’t reduced revenue by 600 basis points, Apple would have achieved better than 14% year-over-year revenue growth.
Anyway, in the upcoming quarter, management suggested 8% year-over-year growth. It may help that Apple’s December quarter will be a week longer than usual.
What happened to iPhone sales?
iPhone sales were weaker than expected, but the slight softness was more than offset by strong Mac sales. The company no longer discloses numbers, but it reported iPhone sales of $42.6 billion, up 9.7%, but slightly below consensus expectations for sales of $43.4 billion. This is still straight ahead of the broader smartphone industry — Apple is generating share by comparison.
We’ve heard speculation that iPhone buyers are opting to invest in Pro devices over the standard range, which does suggest that overall sales numbers may have dipped a bit, in line with the broader industry trend. (This is offset by a higher average spend per user.)
“We had three of the top four smartphones in the US, in the UK, the top three in urban China, the top six in Australia, four of the top five in Germany and the top two in Japan,” he said. iPhone customer satisfaction remains very, very strong at 98%.
“We feel very good about how we performed in the fourth quarter and certainly for the start of this generation.” [of iPhone] suggests we’ll be limited to the 14 Pro and 14 Pro Max for a while, but we’re working very hard to try and fix that,” Cook said.
Service revenue grows, pace slows
Services revenue reached $19.2 billion, up 5%. Analysts were disappointed given the double-digit growth we’ve seen in the category so far. They expected $20.1 billion.
The good news is that Apple now has more than 900 million subscribers to its services, up from 155 million in the last 12 months. Apple CFO Luca Maestri pointed out that digital advertising and games are weak.
Apple recently raised the prices of some of its services. This is said to reflect higher levels of music remuneration.
This decision, coupled with what appears to be slowing growth in the segment, suggests that the company may soon have to contend with a recall issue as consumers face multiple challenges. Although Apple explained that in the context of stable currency exchanges, the segment would achieve double-digit growth.
It’s worth noting that Apple is expected to expand its catalog of sports entertainment programming available on TV+, which could help both boost signups and mitigate churn.
Mac sales the best quarter Apple has ever seen
Mac sales rose an impressive 25% to $11.5 billion. “It was the best quarter [for the Mac] we’ve ever had in the company’s history,” Cook said.
He said lagging Mac demand, which the company was unable to meet in the third quarter due to Covid-related factory shutdowns, helped boost Apple’s Q4. But he also pointed to sales strength from the introduction of the M2 MacBook Air.
iPad sales down
iPad revenue is $7.2 billion. This is a decrease of 13.1%. To explain this, Cook tried to argue that while the new iPads were introduced in time to affect results in the previous quarter, that was not the case this year, with the iPads being introduced in October.
One positive point highlighted by Apple’s management: The number of iPads installed is now at an all-time high – and that more than half of the iPads purchased in the quarter were new to the product.
Apple Watch, AirPods, and more
Wearables and accessories reached $9.6 billion, up 9.8%. Cook confirmed that the new Apple Watch Ultra is popular, admitting that supplies of the device remain limited.
Strong green shoots for future growth
Beyond the standard numbers, Apple threw in some very important tidbits of information. He continues to generate good sales for people who are new to his offerings. More than 50% of iPad sales and “over two-thirds” of Apple Watch sales went to consumers who had never owned one of these products before.
It also generated record sales in India and increased revenue in China. Sales also doubled in Thailand, Vietnam, Indonesia and Mexico, proving the company’s focus on expanding its markets.
What an analyst says
“Like other major technology companies, even Apple is suffering from the negative impact of a deteriorating macro environment and ongoing supply chain issues, although it has done a better job of navigating the challenging environment,” said Jesse Cohen, senior analyst at Investing. com
What next?
The balance sheet shows that Apple continues to invest in the next big thing(s). Research and development expenses reached $6.7 billion in the quarter, up from $5.7 billion a year ago. Spending on that came in at $26.2 billion, up from $21.9 billion. It’s hard not to imagine that Apple is working on something — especially since the company continues to make about “one acquisition a month,” according to Cook.
“As we head into the holiday season with our most powerful lineup yet, we are leading with our values in every action we take and every decision we make,” said Cook. “We are deeply committed to protecting the environment, ensuring consumer privacy, strengthening accessibility, and creating products and services that can unlock humanity’s full creative potential.”
Investors get…
Apple’s board of directors declared a cash dividend of 23 cents per share of the company’s common stock.
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https://www.computerworld.com/article/3678309/apples-q4-results-show-growth-in-interesting-times.html
