Apple Inc. posted weaker-than-expected iPhone sales and services in its latest quarter, clouding an upbeat report and raising concerns about two areas that were expected to stand out.
The iPhone, Apple’s flagship device, brought in about $42.6 billion in the fiscal fourth quarter, the company said Thursday. Analysts had estimated nearly $42.7 billion. Services, a key growth area in recent years, generated $19.2 billion. That was well below the projection of almost $20 billion.
Although overall revenue was higher than expected, the results dashed hopes that Apple would have a great quarter and avoid a broader tech slump. alphabet Inc, amazon.com Inc., Meta Platforms Inc., Microsoft Corp. and others delivered dismal earnings reports in recent days, sending their shares tumbling.
With loyal customers still eager to buy its expensive products, Apple was seen as an outlier. The company also released its latest iPhone earlier in the year than usual, giving the fourth quarter a larger share of sales of Apple’s flagship device. But raging inflation and a broader slowdown in consumer spending, particularly on personal devices, may be taking a toll on the company.
Apple shares fell in late trading after Thursday’s report, though it later pared some of the losses. The shares had declined 18% this year before earnings, a better performance than most major indices. The S&P 500 is down 20% in 2022, and the big-tech Nasdaq Composite Index is down 31%.
The Cupertino, California-based company did not provide a revenue forecast for the current quarter, continuing the approach it took at the start of the Covid-19 pandemic. But analysts estimate sales of about 128,000 million dollars, which would be an all-time record. Apple executives are likely to provide some guidance on Thursday’s earnings call with analysts.
Apple’s overall revenue grew 8.1% to about $90.1 billion in the fourth quarter, which ended on September 24. That beat the $88.6 billion estimate, due to stronger-than-expected growth in its Mac and wearables businesses.
Apple’s iPhone remains its biggest source of sales, and the company was expected to get a boost from an earlier launch this quarter. The period included approximately nine days of sales for the iPhone 14, iPhone 14 Pro, and iPhone 14 Pro Max. But the iPhone 14 Plus, a new format that has had a lukewarm response from consumers, didn’t launch until the current quarter.
While the iPhone 14 Pro looks similar to the previous two models, new features like a 48-megapixel rear camera and the Dynamic Island interface have helped attract buyers.
The company’s services business includes its streaming music and TV+ platforms, as well as Apple Card, iCloud storage and other digital offerings. It’s considered one of Apple’s key sales drivers, especially as the company expands into new types of services.
Earlier this week, the company increased the prices of some services. Apple Music went up to $10.99 a month from $9.99, and TV+ went up to $6.99 a month from $4.99. Apple also modestly raised prices for its Apple One service bundles. The increases could further boost revenue, though they also risk driving customers to rival services.
The iPad, meanwhile, brought in $7.17 billion last quarter, also below expectations. The tablet saw a sales resurgence in 2020 and 2021, thanks to the help of workers and students who outfitted their home offices during the pandemic. Demand has slowed since then, and the device suffered supply chain hiccups over the past year.
iPad sales decreased 13% last quarter from the prior year period. Apple released a new iPad Air earlier this year, but didn’t come out with a new iPad Pro or entry-level model until the current quarter.
Apple generated $11.5 billion from the Mac, easily beating estimates of $9.25 billion. That product line also enjoyed a pandemic hit, fueled by the spread of hybrid work environments. But it also suffered a slowdown, with Mac sales well below estimates in the June quarter.
The Mac rebounded in the fourth quarter, with sales setting a record for that period. The category was boosted by a redesigned MacBook Air and a new entry-level 13-inch MacBook Pro, Apple’s two most popular computers.
The company’s wearables, home and accessories segment, which includes Apple Watch, AirPods, the TV set-top box, HomePod, Beats headphones and other accessories, also saw a boost in the fourth quarter. Apple made $9.65 billion from those products, exceeding expectations.
In September, the company released the second-generation Apple Watch Ultra and AirPods Pro headphones. A new Apple TV with a faster chip will go on sale in early November.
Apple signaled in its previous quarterly report that it would be more cautious about spending, as part of a broader slowdown for Silicon Valley companies. Unlike some peers, Apple has avoided mass layoffs. But he plans to cut spending in 2023 and slow hiring, Bloomberg News reported. “Obviously we are being deliberate in our decisions about where to invest,” Cook said in July.
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