Apple reported a tough december quarter on Thursday, with declining sales in its iPhone, Mac and wearable businesses, including the company’s biggest quarterly revenue decline since 2016.
At first, investors didn’t like the results, with shares of Apple falling as much as 4% in extended trading.
But the stock had a brief rally after Chief Financial Officer Luca Maestri began giving data points on a call with analysts, suggesting that Apple will outperform during the current quarter, even if overall sales decline from last year. be less
The tech giant has not provided guidance since the start of the pandemic. But its data points — or “directional insight,” as management calls it — allow analysts covering the stock to see how the company is doing and update their models.
Here’s how Apple’s forward-looking statements break down on Thursday.
“For iPhone, we expect our March quarter year-over-year revenue performance to be sharp relative to the December quarter year-over-year revenue performance,” Maestri said. “This represents an acceleration in our underlying year-over-year business performance, as the December quarter benefited from an additional week.”
The iPhone is by far Apple’s largest product segment, accounting for 56% of sales in the most recent quarter. Apple said Thursday that iPhone sales declined more than 8% year over year. But Maestri’s comments suggest that they will not fall so soon in the March quarter.
Management said one reason for the decline in November and December was that it could not make enough high-end iPhones at Chinese factories due to Covid restrictions and production had recovered.
Still, there’s a risk that customers who didn’t get a new phone during the holiday season will skip it instead of buying one in the current quarter. When analysts asked on the call, Apple CEO Tim Cook said the possibility was “very difficult to predict.”
Before Thursday, analysts had expected Apple to guide to sales of about $98 billion for the company’s fiscal second quarter.
On Thursday, Apple said revenue declined by 5.49%. In the March quarter last year, Apple recorded sales of $ 97.28 billion. A similar decline in the March quarter this year would take sales to around $92 billion.
So on the surface, this should have been a disappointment.
But as Apple explained, the 5.49% decline would actually be an improvement from the December quarter, as Apple’s results in that quarter were artificially boosted by the fact that there was an extra week. In other words, the year-to-date revenue performance for December 2022 was much worse than it looked.
In addition, the Covid lockdown at factories in China was a big factor in shortages, but Apple said on Thursday that its production was back to a level it was comfortable with, suggesting that supplies in the March quarter were not as big. Will not happen. As it was in December.
“For services, we expect revenue to grow year-on-year while facing macroeconomic headwinds in areas such as digital advertising and mobile gaming,” Maestri said.
Services revenue was one of the few pleasant surprises for Apple on Thursday, as $20.77 billion in sales beat Wall Street’s consensus expectations. This segment includes the App Store, warranty, iCloud and Apple Music, among other things.
Last year, Apple reported $19.82 billion in services revenue in the March quarter, so the company is suggesting growth from there, even though executives said it remains a difficult environment with gaming and advertising sales down. Is.
“For Mac and iPad, we expect revenue for both product categories to decline by double digits year-over-year due to challenging comparisons and macroeconomic headwinds,” Maestri said.
This represents a significant turnaround for the iPad, which was Apple’s fastest-growing hardware business during the December quarter, which grew nearly 30% in sales on a year-over-year basis to $9.4 billion. Now Apple is suggesting that the business will go from 30% growth to a decline of over 10%.
In contrast, the Mac business declined by about 29% during the December quarter, but Cook told analysts that this was partly due to the company releasing new laptops, and Apple announcing new Mac desktops and laptops in January. Of. Mac sales will be down at least 10% in the March quarter based on these comments, but are likely to improve.
“We expect gross margin to be between 43.5% and 44.5%. We expect OpEx to be between $13.7 billion and $14.9 billion,” Maestri said.
Apple’s margins are much higher than before the pandemic. For example, in the quarter ended in December 2019In the last full quarter before the COVID pandemic was declared, Apple reported a gross margin of 38.4%.
“We are doing a lot of work on the cost structure and it is paying off,” Maestri said.
Cook told CNBC’s Steve Kovach on Thursday that Apple actually came in under its operating expense target for the December quarter.
“We’re being prudent and deliberate. If you look at our OpEx guidance, we came down half a billion dollars from what we said we were going to do this quarter,” Cook said. “So we’re reducing costs.”