Apple’s quarterly profit slashed 5% by weak iPhone sales – AI Tech News

Apple on Thursday reported sales and earnings that beat Wall Street expectations due to weak iPhone sales after COVID lockdowns in China disrupted production at the company’s biggest seller.

Apple’s sales fell 5% to $117.2 billion and were down in all regions of the world in the quarter. Sales in every product category fell, except for gains in services and iPads. Earnings per share were $1.88, Apple’s first breach of Wall Street earnings expectations since 2016.

Analysts had expected sales of $121.1 billion and earnings of $1.94 per share, according to IBES data from Refinitiv. Apple chief executive Tim Cook told Reuters that the production disruptions that affected Apple’s key quarter were now over.

During its first fiscal quarter ending Dec. 31, Apple faced a wave of challenges that left Wall Street expecting lower sales. Chief among these were supply chain pressures when COVID lockdowns at a production plant in Zhengzhou, China slowed production of iPhone 14 Pro and Pro Max devices, two priced models. premium that would traditionally help boost Apple’s margins.

In an interview with Reuters, Cook said the production disruptions “lasted most of December” but “production is now back to where we want it to be”. Cook said lockdowns in China created a double challenge where supply and demand were constrained, with increased sales in China down 7% to $23.9 billion.

“When things started to reopen in December (in China), we saw an increase in traffic to our stores compared to November and an increase in demand as December progressed,” Cook told Reuters.

The strong US dollar also hurt Apple, which derives more than half of its sales from outside the Americas, but the effect was less than expected as the dollar eased from US highs. last year. Apple had warned investors that such currency issues would lead to a 10% drop in sales, but said on Thursday the actual effect was 8%.

“I would point out that 8% is still a very serious headwind,” Cook told Reuters. “I wouldn’t underestimate that. We would have grown at a constant exchange rate.

In addition to iPhone supply chain issues, Wall Street analysts expected iPhone sales to fall this year as part of a larger pattern in which the iPhone 14 family launched last year is selling more slowly after two consecutive years of strong sales of iPhone 12 and 13 models. Apple said iPhone sales were $65.8 billion, down 8% from a year earlier and below analyst estimates of $68.3 billion.

The company’s services segment, which includes content companies like Apple TV+ and software companies like the App Store, grew 6% to $20.8 billion in revenue, against expectations $20.7 billion analyst base, according to Refinitiv data.

Cook told Reuters the company now has a base of 2 billion active devices, up from 1.8 billion a year ago. The company now has 935 million paid subscriptions, up from 900 million the previous quarter, and service sales set a record in several markets, including China, he said.

Sales of the company’s Mac computers, which had exploded during the work-from-home wave during the pandemic, fell 29% year-over-year to $7.7 billion, against expectations of $9.6 billion, according to Refinitiv data. Apple executives warned last year that Mac sales risked a year-over-year decline as the previous year’s results included a sales boom associated with the release of new MacBook Pro computers. equipped with Apple’s in-house processors.

iPad sales, which also saw a pandemic-related surge, rose 30% to $9.4 billion, against analyst expectations of $7.8 billion, according to Refinitiv data. . The apparel and accessories segment, which includes the Apple Watch and AirPods, fell 8% to $13.5 billion from analyst estimates of $15.2 billion, according to Refinitiv data.

Cook told Reuters that the iPad’s strong performance resulted from the launch of new models and the absence of supply constraints that had hampered sales of the device a year earlier.

Apple investors are waiting to see if the company dives into new markets this year. Tech publication The Information reported that Apple plans to release a mixed-reality headset that could cost around $3,000 this year and is also working on a more affordable tracking device.

Apple is one of the few major tech companies that has not announced major layoffs, although its ranks have never risen as quickly as those of its peers. At the end of 2022, it said it had 164,000 employees, an increase of less than 20% from its 2019 workforce. In contrast, other companies such as Meta Platforms, which is laying off around 11,000 employees, had to roughly doubled its workforce between 2019 and 2022.