Apple stock dips after weak outlook for December quarter revenue

Apple reported fiscal fourth-quarter earnings in the US overnight Thursday that beat analyst expectations for sales and earnings per share, but revealed that overall sales fell for the fourth quarter in a row.

Every hardware business outside of the iPhone declined year over year, with big drops in the iPad and Mac segments.

Apple shares fell over 3 per cent in extended trading after executives signaled the company may not return to growth in the holiday quarter.

Here’s how Apple did, versus LSEG (formerly Refinitiv) consensus expectations:

EPS: $US1.46 per share vs. $US1.39 per share expected
Revenue: $89.5 billion vs. $US89.28b expected
iPhone revenue: $US43.81b vs. $US43.81b expected
Mac revenue: $US7.61b vs. $US8.63b expected
iPad revenue: $US6.44b vs. $US6.07b expected
Wearables revenue: $US9.32vs. $US9.43b expected
Services revenue: $US22.31b vs $US21.35b expected
Gross margin: 45.2 per cent vs. 44.5 per cent expected

Apple didn’t give formal guidance, but finance chief Luca Maestri said the company expected December quarter revenue to “be similar to” last year’s revenue. However, Apple said that the December quarter this year will have one fewer week.

Analysts were looking for $US122.98b in revenue for the December quarter, which would be a return to year-over-year growth of about 5 per cent in Apple’s most important quarter.

Net income was $US22.96b , or $US1.46 per share, versus $US20.72b , or $US1.29 per share, during the year-earlier period. The tech giant reported $US383.29b in sales for the full fiscal year, down about 3 per cent from the prior year. Quarterly revenue declined less than one per cent in the September quarter.

The company’s iPhone sales were in line with Wall Street expectations and increased more than 2 per cent from last year. It was the only hardware line for Apple to show growth in the quarter, and the period only included about a week of iPhone 15 sales.

Apple chief executive Tim Cook told CNBC that the iPhone 15 was doing better than the iPhone 14 did during the September quarter last year.

“If you look at iPhone 15 for that period of time and compare it to iPhone 14 for the same time in the year-ago quarter, iPhone 15 did better than iPhone 14,” Cook told CNBC’s Steve Kovach. He added that Apple’s more expensive Pro and Pro Max iPhones suffered supply constraints because of high demand.

Apple’s Mac and iPad businesses both declined during the quarter. Maestri had warned on a call with analysts after third-quarter results that iPad and Mac sales would fall by double-digit percentages.

Mac sales came in below Wall Street expectations, falling nearly 34 per cent year over year. Apple held an unusual nighttime launch event for its new MacBook Pro laptops and iMac desktop last month. While sales of the new devices aren’t included in the quarter, Apple was signaling that new products could boost sales once again thanks to its new M3 chips.

Cook told CNBC that the Mac comparison is to “an all-time record” fourth quarter, which followed a huge supply disruption and pushed what would have been third-quarter sales into the last quarter of 2022. “So, the comparison point here is very difficult,” he said.

“I think the Mac is going to have a significantly better quarter in the December quarter. We’ve got the M3, we’ve got the new products, and we don’t have the compare phenomenon on a year-over-year basis,” Cook said, referring to an unusually strong market for Macs in 2022.

Cook added the overall market for personal computers is “challenging”.

Revenue from iPads was also down, falling 10 per cent from the same period last year. Apple did not announce new products ahead of the holiday season this year.

Apple’s services business was a bright spot. Apple recorded $US22.31b in services revenue, outpacing analyst expectations and increasing more 16 per cent from a year earlier.

Apple’s services division includes online subscriptions like iCloud storage and Apple Music, as well as warranties from AppleCare. A big chunk of the business comes from its deal with Google for the default search engine on Apple’s browser, Safari, which has been highlighted in recent weeks as part of the Department of Justice antitrust case against Google. That payment to Apple is worth an estimated $US19b this year.

Cook said services components including App Store sales, advertising (including the Google deal), iCloud, payment services, and Apple Music did well in the quarter and hit an internal Apple record, signaling continued growth.

“Every main service hit a record,” Cook said.

Maestri also noted in a statement that Apple’s installed base of devices, or the number of iPhones, Macs, and iPads currently in active use, reached an all-time high during the quarter, although the company did not give an exact number. Analysts say that growth in Apple’s installed base suggests future growth in its services division.

Cook said that Apple had over one billion paid subscriptions, which include both Apple’s own services as well as apps on the App Store that bill on a recurring basis.

Apple’s wearables business unit includes headphones like the AirPods as well as Apple Watch sales. It, too, shrank year over year, dropping over 3 per cent.

Apple’s business in Greater China, its third-largest market, is under the microscope as investors worry about increased competition from Huawei. Greater China sales were basically flat year over year. Apple reported $US15.08b from the region, which includes Hong Kong and Taiwan.

The company continues to have a huge amount of cash and cash-like securities on hand, even as it strives to offset its cash pile with debt. Apple said it had $US162.1b in cash on hand on Thursday.

Apple said it would pay a dividend of US24¢ per share this month and said the company had spent $US25b during the quarter on share repurchases and dividends.

CNBC

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