Apple Restores Its iPhone Superpower In Challenging Times

Apple Inc AAPL experienced its overall sales falling for the second consecutive quarter but still managed to exceed top and bottom line estimates due to recovered iPhone sales. 

Fiscal Second Quarter Earnings

During the quarter that ended on April 1st, Apple’s revenue slipped 3% from $97.28 billion in the prior quarter to $94.84 billion, topping Refinitiv’s consensus of $92.96 billion. As a result, Apple made a net income of $24.16 billion compared to $25.01 billion in the year-earlier period.  The resulting EPS was $1.52 per share, topping the expected $1.43.

Product Segmentation 

As CEO Tim Cook summed up, it was quite a good quarter from an iPhone point of view that generated $51.33 billion in revenue, especially when looked at market statistics as broader smartphone industry contracted nearly 15% during the period, according to an IDC estimate. StreetAccount consensus expected $48.84 billion. With iPhone revenue increasing 2% during the quarter, it is suggested that supply shortages and disruptions that have been plaguing the product for last few years have finally subsided. 

On the other hand, Mac and iPad didn’t score so well but Apple warned when it reported its previous quarter of this decline, they just fell more than expected. Mac generated $7.17 billion in revenue, below the expected 

$7.80 billion while iPad brought in $6.67 billion as revenue dropped almost 13% YoY, also below StreetAccount’s estimate of $6.69 billion. Although Mac sales dropped more than 31% YoY, it should be noted that this is a comparison to a period when Apple still benefited from the last days of the pandemic boom. Also, there’s the fact that Apple shifted to using its own chips that brought a longer laptop battery life. Other Products generated $8.76 billion in revenue, exceeding the expected $8.43 billion while services brought in $20.91 billion, below the expected$20.97 billion but marking an increase of 5.5% YoY which suggest that Apple’s focus to its highest-margin business is paying off. 

While sales contracted in most regions, Asia Pacific expanded to $8.11 billion.

Outlook 

Cook announced that Apple is still resisting to layoffs which are the last resort. Meanwhile, Cook’s growth bet is on emerging markets such as India where Apple is luring away Android phone users. Apple recently open its first two stores in the country, in Mumbai and Delhi respectively. 

Apple managed to beat the odds and find new opportunities in a heavily hit market.

Meanwhile, Qualcomm Inc QCOM outlook is now grim with Apple being its largest purchaser of standalone modem chips. On Wednesday, Qualcomm gave lower than expected forecasts for its third quarter revenue and profit as it expects the smartphone industry to take longer to use up excess chips before new orders for fresh ones come in. Although Qualcomm is hoping for smartphone sales to recover in China during the second half of the year, this market was among the first to be slashed by high inflation that weakened consumer spending and consequently, lowered the demand on discretionary goods such as electronics. Qualcomm’s CEO Cristiano Amon also noted that used phones are also replacing the sales of premium-tier devices. Back in 2022, Apple’s sales of refurbished iPhones confirmed this trend as they rose 16% across the globe.         

Recap

Apple came out on top of the earnings week thanks to stronger than expected iPhone sales that make up more than half of its total revenue. It also achieved an all-time record in services with the March quarter record for iPhone in an extremely challenging macroeconomic environment. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.