Profit slides, and revenues decline for second consecutive quarter, but results please investors after surprising iPhone sales
Apple has pleased Wall Street after posting better than expected second quarter earnings, driven by stronger-than-anticipated iPhones sales.
While Apple’s Q2 results beat investor expectations, leading to a 2 share price rise in extended trading, the financial results make clear the tech giant is feeling the economic impact, after both profits and revenues declined. Indeed, overall sales fell for the second straight quarter in a row.
The results come amid a depressed market for smartphones, which should have impacted Apple’s main revenue generator – the Apple iPhone.
Earlier this year Gartner had projected a second straight year of decline in smartphone and PC sales, while IDC had found that shipments of new smartphones had plunged 18.3 percent in Q4 2022, with total shipment in 2022 down to 2013 levels.
But the fact that Apple’s second quarter results performed better than expected reassured investors, especially after Apple had shocked Wall Street in February when its Q1 profits missed Wall Street expectations for the first time since 2016, dragged down by iPhone sales falling for the first time since 2020.
But there was better news for the second quarter ending 1 April.
Apple posted net income of $24.1bn, down 3 percent, from a profit of $25bn in the same year-ago quarter.
This translated to $1.52 per share, compared with estimates of $1.43 per share.
Revenue meanwhile fell 3 percent down to $94.8bn (beating expectations of a 4.4 percent decline or $92.96 billion expected – Refinitiv data), However this was down from overall sales of $97.3bn a year earlier.
Solid iPhone sales
So how did Apple manage to beat Wall Street expectations?
The answer is better than expected sales of iPhones, which were up 1.5 percent to $51.3 billion during Q2, besting expectations of a 3.3 percent drop.
This is a surprising achievement considering that research firm Canalys has found that global smartphone shipments fell 13 percent during the first three months of 2023.
“We are pleased to report an all-time record in Services and a March quarter record for iPhone despite the challenging macroeconomic environment, and to have our installed base of active devices reach an all-time high,” said Tim Cook, Apple’s CEO.
“We continue to invest for the long term and lead with our values, including making major progress toward building carbon neutral products and supply chains by 2030,” said Cook.
Tim Cook then told Reuters in an interview on Thursday that the company set a fiscal second-quarter record for iPhone sales, thanks in part to picking up new users in markets such as India, where Cook recently travelled for the opening of that country’s first Apple stores.
“We were thrilled by our performance in emerging markets,” Cook was quoted as saying. “We set records for the iPhone installed base in every geographic segment, and we had very strong ‘new to’ (sales in) emerging markets, particularly in Brazil, India and Mexico.”
Cook also said supply-chain problems and delays have vanished. “We had no material shortages at all during the quarter across any of the products.”
Not all good news
Digging down into the results however, show that not all Apple product lines performed as well.
Sales of Macs fell sharply (31 percent compared with analyst estimates of a 25 percent decline). Apple Mac sales came in at $7.2bn.
Meanwhile iPad revenues declined nearly 13 percent to $6.7bn.
Sales in Apple’s wearables business, which includes devices such as AirPods and the Apple Watch, fell less than 1 percent, beating estimates of a 4.4 percent drop.
Apple’s biggest growth segment happened at its services business, which includes Apple iCloud, Apple Pay, Apple TV+ etc. This segment grew 5.5 percent to an all-time services sales record of $20.9bn. The strong performance of the services business will please Tim Cook, as it is less cyclical than hardware sales.
Overall, Apple’s product lines can be summarised as follows:
- iPhone revenue: $51.33 billion vs. $48.84 billion expected ;
- Mac revenue: $7.17 billion vs. $7.80 billion expected;
- iPad revenue: $6.67 billion vs. $6.69 billion expected;
- Other Products revenue: $8.76 billion vs. $8.43 billion expected;
- Services revenue: $20.91 billion vs. $20.97 billion expected
Apple also attempted to appease investors by announcing up to $90 billion in share buybacks.
And Tim Cook added to overall upbeat assessment when he said that Apple was not planning layoffs, unlike those that other big tech companies.
“I view that as a last resort and, so, mass layoffs is not something that we’re talking about at this moment,” he reportedly said.