Apple Expects Supply Shortages to Slash Sales
Shares in pple Inc. dropped after the iPhone manufacturer predicted that supply problems would cause revenue to drop by $4 billion to $8Billion during the current quarter. The prediction was a stark reminder of the recent record-breaking results the company has just announced.
Apple spoke out during Thursday’s conference call to say that China’s recent covid restrictions will have an impact on its June quarter. The fiscal second quarter’s sales and profit had topped analysts’ estimates, fueled by strong demand for the iPhone and digital services, and the company announced $90 billion in new stock buybacks. As the New York Stock Exchange opened on Friday, shares fell less than 1%.
This outlook reaffirmed fears that tech supply-chain problems will continue to plague the sector after a brief recovery from pandemics. Companies ranging from Microsoft Corp. to Texas Instruments Inc. have already said that China’s Covid-19 lockdowns will crimp sales and make it harder to produce products like the Xbox. The Xi Jinping administration has embraced a strict Zero Covid policy to stop the pandemic’s spread, reverberating through the world’s supply lines.
Chief Executive Officer Tim Cook stated that chip shortages and war in Ukraine are also causing disruptions.
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“We are not immune to these challenges, but we have great confidence in our teams, and our products and services — and in our strategy,” he said.
Prior to the announcement, Apple’s stock fell 7.8%. The decline was due to the wider tech recession. Apple saw a 34% gain in 2021. This was its third consecutive year with increases.
The latest supply woes didn’t begin until the very end of March, Apple said, so the last quarter wasn’t affected. Apple announced earlier that the quarter’s sales increased 8.6% to $97.3 million, a record figure for a non holiday quarter. On average, analysts had predicted $94 billion. The average analyst had predicted $1.42 per share. This initially sent the shares higher in late trading.
Apple stated previously that March’s quarter would record sales, but its growth rate for the entire business would slow. The company’s December quarter was a blowout sales period, exceeding Wall Street estimates with an all-time revenue high of nearly $124 billion.
Following its usual pattern, Apple used the company’s second-quarter report to increase its dividend and boost stock repurchases. It will go up from 5 to 23 cents per share.
The Cupertino, California-based company said China’s Covid restrictions also have affected demand in that country, but that broader demand has been strong. And it’s contending with increasing inflation and a pullout from Russia following that country’s invasion of Ukraine. Analysts project a third quarter revenue of $86 billion.
Apple’s largest source of revenue, the iPhone, generated $50.6 billion in the second quarter. This compares to an average estimate $49.2 billion.
In March, the company introduced the affordable iPhone SE. This contributed to the quarter’s sales. But the flagship iPhone 13 may have been less of a draw than the previous year’s iPhone 12, which was more of a dramatic update. The iPhone 13 retained the earlier model’s design, with some minor upgrades that focused on camera improvements.
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Apple’s resurgence continued with a quarter of revenue totaling $10.4 billion. Apple introduced the powerful Mac Studio desktop, which was launched in quarter. However, many orders have been delayed by supply chain issues, high demand, and customization time. The new MacBook Pros are responsible for strong Mac sales, but those models also face supply restrictions.
iPad sales were $7.65billion, 2.1% lower than the previous quarter. Despite new models — including an updated low-end iPad, a new iPad mini and updated iPad Air — the product continues to be one of Apple’s least-lucrative major segments. Some users have panned the device in recent months, saying its software features haven’t kept pace with hardware capabilities.
Estimates for Wearables, Home, Accessories, which include the Apple TV, Apple TV, HomePod mini, AirPods, and Apple TV, fell short of expectations. Last quarter’s revenue was $8.8 million, which is lower than the $9 billion estimate.
Apple’s services revenue grew 17% to $19.8 billion, slightly above projections.
On the call, Cook touted Apple’s recent best-picture Oscar win for TV+’s “CODA,” citing it as an example of the company’s services making its whole lineup more compelling.
“The seamless integration of hardware, software and services is at the center of our work and philosophy at Apple,” he said.
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