Apple expects faster sales growth, strong iPhone demand despite dismal economy

Jul 28 (Reuters) – Apple Inc (AAPL.O) He said Thursday that parts shortages are waning and iPhone demand is not stopping despite consumers’ tightening of other spending, helping it to beat Wall Street expectations and anticipate faster sales growth in the future.

Shares of the Silicon Valley giant rose 3.5% hours after the results were announced.

Although macroeconomic indicators around the world are turning negative, Chief Financial Officer Luca Maestri told Reuters there has been no slowdown in demand for iPhones, the company’s largest source of revenue.

Phone sales in the fiscal third quarter rose 3% to $40.7 billion, when Wall Street was bracing for a 3% decline. By contrast, the overall global smartphone market fell 9% during the quarter just ended, according to Canalys data.

Apple’s loyal and relatively affluent customer base has weathered lower consumer spending better than other brands in the past, and the company’s latest quarterly results point to a similar pattern emerging.

“Apple in this sense has a certain strength that allows it to be influenced to a lesser extent than many of its competitors,” said Canalys Research Analyst Runar Björhovede.

Apple offered some caution.

Apple’s Maestri said in an interview that the sluggish economy is hurting sales of advertising, accessories and home products, describing the units as “pockets of weakness.”

“Fortunately, we have a very broad portfolio, so we know we’ll be able to handle that,” he added.

The results show that Apple’s advertising activity, which includes selling ads along with news articles and search results in the App Store, is just as vulnerable to marketing cuts as competitors Snap Inc. (SNAP.N) and Meta Platforms Inc (META.O).

Maestri said parts shortages will continue to hamper Mac and iPad sales, although the impact has eased. They cost Apple less than $4 billion in sales in the quarter ending June 25, less than it expected. Maestri said the company expects the hit to diminish further in the current quarter.

But Apple risks joining rivals in hoarding an unsalable stock of tablets and computers if more customers stop buying due to rising inflation and interest rates.

“In terms of testing demand, you can’t really test demand unless you have supply,” Apple CEO Tim Cook told analysts Thursday. “And we were so far away from the last quarter that we had an estimate of what we think was the demand for it. But it’s an estimate.”

Apple, citing economic uncertainty, said it does not provide specific revenue guidance. But she said sales compared to last year should rise faster in the current quarter than the 2% growth it achieved in the quarter just ended.

‘more simple’

Overall, Apple said quarterly sales and earnings were $83.0 billion and $1.20 per share, above estimates of $82.8 billion and $1.16 per share, according to Refinitiv data.

The rise of the US dollar has affected many companies such as Apple that generate significant foreign revenue and get less cash when transferred. Apple said currency fluctuations reduced sales by 3% in the June quarter and will shrink them by 6% in the current quarter.

The closure of its Russia business earlier this year due to the war also hurt sales.

Apple, like many of its tech peers, is slowing hiring and cutting costs given the challenging economic climate. Read more Cook said Thursday that Apple “has been more deliberate in (hiring) in appreciation of the reality of the environment.”

The latest economic problems include supply chain disruptions that have affected production of some Apple products, such as iPads and Macs that have had assembly sites near areas of China that have been closed due to COVID.

While sales of iPhones and iPads beat expectations, revenue from services and Mac computers and accessories didn’t meet Wall Street’s targets, and sales in the crucial Chinese market fell 1% as consumers closed there limited sales.

Apple is also facing sluggish overall economic growth in China, with fiscal third-quarter sales of $14.6 billion.

Growth in the company’s services business, which has provided a boost to sales and profits in recent years, was 12%, down from the previous year’s rate of 33%, generating $19.6 billion in revenue, below estimates of $19.7 billion.

Apple said it now has 860 million paying subscribers to its services, up from 825 million in the previous quarter.

iPad and Mac sales were $7.2 billion and $7.4 billion, compared to estimates of $6.9 billion and $8.7 billion. Mac sales represented a 10% contraction, following record sales since 2020, first from the boost to work from home and then from Apple’s new processor chips.

Its shares closed Thursday down about 11% so far this year, just below the broader S&P 500 index (.SPX) index and also lower than other consumer device makers such as Sonos Inc (SONO.O) And Samsung Electronics (005930.KS), the only company that sells more smartphones than Apple. Read more

(Additional reporting by Steven Nellis, Nivedita Ballou and Parrish Dave) Editing by Peter Henderson and Lisa Shumaker

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