Compared with peers such as Alphabet, Amazon, Meta, and Microsoft, which have plummeted hundreds of billions of dollars in valuation, Apple is undoubtedly “lucky”. In its latest quarterly earnings report, Apple’s revenue and profit beat analysts’ expectations, although sales of both iPhones and services fell short of expectations. However, Apple said the December quarter will be difficult due to significant headwinds from a stronger dollar and supply challenges.
“Overall, we believe that the company’s December quarter revenue performance will be slower than a year earlier than the September quarter,” Maestry, the company’s chief financial officer, said on an earnings call on Thursday.
The cautious outlook comes as Apple reported revenue of $90.1 billion in the September quarter, up 8% from a year earlier. That figure beat the $88.9 billion forecast, up from $83.4 billion a year ago, according to Refinitiv data.
Apple’s net income rose slightly to $20.7 billion, above expectations of $20.5 billion. Profits at other big tech companies took a heavy hit this quarter, however. By comparison, Amazon’s net profit fell 9%, Microsoft 14%, Alphabet 27% and Meta 52%.
Still, a stronger dollar brought currency headwinds to revenue last quarter by nearly 6 percentage points, and there are concerns that consumer demand may weaken amid an economic slowdown. The services segment, which includes App Store purchases, has been Apple’s biggest growth driver in recent years, but revenue from that segment also missed expectations, rising just 5 percent to $19.2 billion, compared with analysts’ expectations of more than $20 billion.
Apple CFO Maestri noted that the dollar exchange rate effect will present a “nearly 10 percentage point” headwind, which is estimated to be about $12 billion in current revenue. “The impact of a stronger dollar on Apple in the next quarter is equivalent to a quarter of Nike’s sales,” said analyst Camplin.
The earnings report showed that iPhone sales rose 10% to $42.6 billion, slightly missing expectations of $43.2 billion. iPhone sales accounted for 47% of Apple’s total revenue last quarter. Apple CEO Tim Cook said supply of Apple’s pricier Pro and Pro Max models has been constrained since they were released, so they have been working very hard to meet demand.
Another challenge is the “FX impact on digital advertising and gaming”. More than 900 million people in the services segment now pay recurring fees for digital subscriptions, but profit margins fell about 1 percent from the previous quarter to 70.5 percent, “mainly due to exchange rates,” Maestri said.
In addition to supply chain issues and a strengthening exchange rate, Apple is concerned that persistent inflation could squeeze discretionary spending and consumer demand could weaken . “The macro environment is certainly not as good as it was a year ago,” Maestri admitted.