Apple Forecasts Continuing Sales Slump in Current Quarter
August 3, 2022 (Reuters) – Apple (AAPL.O) announced on Thursday that it expects its sales slump to continue into the current quarter, leading to a drop in share prices despite surpassing Wall Street’s sales and profit targets in the fiscal third quarter. The company’s shares fell by about 2% after the announcement.
Although Apple reported a profit beat in the just-ended period, thanks to strength in its services segment, investors were disappointed by weaker-than-expected iPhone sales. Executives stated that they expect iPhone sales to improve in the fourth quarter but did not provide specific figures.
Apple finds itself in a precarious position as it competes against Android rivals in a mature market with its iPhone, while its next major product, the Vision Pro mixed-reality headset announced in June, is not yet available to consumers.
For the fiscal third quarter that ended on July 1, Apple reported a 1.4% decline in sales to $81.8 billion. Earnings per share rose by 5% to $1.26, beating analyst expectations of $81.69 billion and $1.19 per share, respectively. The company experienced weaker iPhone sales but saw strong growth in its services segment, which includes Apple TV+, and sales in China, which grew by 8% compared to the previous year.
Apple CFO Luca Maestri projected a year-over-year revenue performance in the fiscal fourth quarter ending in September, similar to the drop reported in the third quarter. This sales forecast is below analyst expectations, which predict flat fiscal fourth-quarter sales of $90.19 billion.
Analysts have voiced concerns regarding iPhone sales growth and when volume will pick up. Apple’s forecasted gross profit margin for the September quarter is between 44% and 45%, surpassing analyst expectations of 43.4%.
According to Refinitiv data, Apple’s research and development spending amounted to $22.61 billion for the fiscal year so far, a $3.12 billion increase from the previous year. The company’s CEO, Tim Cook, explained that the increased spending is due, in part, to the development of generative artificial intelligence, a field that other technology companies are also investing in.
Despite a slump in the Chinese smartphone market, Apple outperformed its competitors with double-digit growth in iPhone sales in the region. Cook also highlighted strong sales in other segments in China, contributing to Apple’s total revenue of $15.76 billion in the greater China region.
Insider Intelligence analyst Jeremy Goldman noted that Apple continues to face challenges due to waning growth in the smartphone market. However, industry experts are keeping an eye on the company’s earnings call for potential announcements regarding the Vision Pro or AI-related advancements.
In the third quarter, Apple’s services segment generated $21.21 billion in revenue, surpassing estimates. The company now boasts 1 billion subscribers on its platform, including both Apple services and third-party apps, up from 975 million subscribers in the previous quarter.
Apple’s wearables business, which includes the Apple Watch and AirPods, reported revenue of $8.28 billion. Mac and iPad sales were $6.84 billion and $5.79 billion, respectively.
Apple CEO Tim Cook remains optimistic, stating, “We continue to see strong upgrader activity to Apple Silicon, and we’re investing in research to further enrich people’s lives through innovations like generative AI.”
Reporting by Stephen Nellis in San Francisco and Yuvraj Malik in Bengaluru; Editing by Peter Henderson and Matthew Lewis