Apple announces December quarter earnings on Thursday, and several signs point to its first year-over-year revenue loss since 2019’s March quarter.
During the holiday shopping season, Apple’s iPhone 14 Pro and iPhone 14 Pro Max were difficult to find in retailers. As consumers and businesses digest sales from the epidemic and trim expenses in preparation for a probable recession, the PC and smartphone industries are declining.
Apple Profit Seen Sliding
On Thursday, Apple is expected to publish its first year-over-year fall in revenue since the March quarter of 2019. Several important factors exist.
The company couldn’t make enough of its high-end iPhones when its key manufacturing facility in China was locked down for weeks amid Covid lockdowns. Customers in a number of locations realized as early as November that Apple could not guarantee delivery of a new iPhone before Christmas.
In that month, Apple issued an uncommon warning to investors, saying that production difficulties would result in lower shipments than originally projected. It was a piece of information that caused many analysts following the stock to reduce their projections.
IDC reports that smartphone shipments fell by 18% in the fourth quarter, the biggest decline the market research firm has ever seen. The PC market shrank by 28% in the fourth quarter, said the company. However, a lot of investors think that despite the market’s decline, Apple is outperforming its rivals. Here are the predictions made by Wall Street, based on Refinitiv consensus forecasts:
- Mac revenue: $9.63 billion
- Earnings per share: $1.94 per share
- Services revenue: $20.67 billion
- iPhone revenue: $68.29 billion
- Other products revenue: $15.26 billion
- iPad revenue: $7.76 billion
- Revenue: $121.19 billion
Since 2020, Apple has not provided guidance, citing uncertainty first induced by the epidemic. However, the corporation often gives a few data points that analysts might use to gauge its performance.
Investors want to know if the shortage of iPhone 14 Pro models in the December quarter would drive demand in the March quarter, now that the supply situation has improved.
Consensus estimates place sales for the March quarter at a little over $98 billion, representing a modest year-over-year increase.
While we expect Apple’s March quarter revenue to decline at a less-than-seasonal rate due to the shift of iPhone demand from the December quarter to the March quarter, the consumer electronics spending backdrop remains challenging, with tablets, PCs, and discretionary products such as wearables all facing continued demand headwinds.
Apple might indicate to investors that the company’s March quarter will be weak if consumer confidence declines in the face of rising interest rates and diminishing global savings.
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App Store
Investors searching for a bright spot in management commentary may want to consider Apple’s profitable services division, which has been expanding rapidly for years.
Although analysts are divided on the severity of the drop, multiple data sources from the fourth quarter, including Apple’s own App Store payouts, suggest to a considerable slowdown in App Store growth.
One of the biggest service components is the App Store, although it only makes up a small portion of the overall revenue, which also includes online subscriptions, warranties, and search license fees. According to D.A. Davidson analyst Tom Forte, Apple shares may rise if services like Apple TV+ and Apple Music appear to be contributing a larger share of Apple’s income.
Refinitiv forecasts a $20.67 billion total for services in the December quarter, indicating a 5.9% growth rate.
Given that a large portion of Apple’s sales are made outside of the United States, analysts will also be keeping an eye on whether the strong dollar continues to harm the company.
The British pound, the Canadian dollar, and the Japanese yen all declined against the dollar during the December quarter. Apple management previously predicted that a strong dollar would slow sales growth by 10%.
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