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Weak iPhone sales cause Apple’s first earnings shortfall since 2016

Apple's quarterly sales were down worldwide, falling 5% to USD 117.2 billion

After repeated COVID lockdowns in China interrupted production of the company’s top seller iPhone, Apple Inc. latest sales and profit figures have now fallen short of Wall Street projections. Apple’s stock dropped 5% after the results were released.

Apple’s quarterly sales were down worldwide, falling 5% to USD 117.2 billion. Sales of every product category also decreased, except services and iPads, which saw increases. As a result, apple’s earnings per share came in at USD 1.88, missing Wall Street’s profit forecasts for the first time since 2016.

According to IBES statistics from Refinitiv, analysts had projected sales of USD 121.1 billion and earnings of USD 1.94 per share. However, Tim Cook, the CEO of Apple, told Reuters that the production delays that hampered Apple’s crucial quarter were finally past.

Apple experienced a wave of difficulties, leading Wall Street to anticipate fewer sales. First, the manufacture of the iPhone 14 Pro and Pro Max, two high-end models that would typically assist in raising Apple’s margins, was slowed down due to COVID lockdowns at a manufacturing plant in Zhengzhou, China. This put a strain on the supply chain.

During an interaction with Reuters, Tim Cook stated that manufacturing hiccups “lasted through most of December” but that “production is now back where we want it to be”.

Tim Cook claimed that the supply and demand in China were constricted due to the lockdowns, resulting in more excellent China sales decreasing 7% to USD 23.9 billion.

“We did see an increase in traffic to our stores as compared to November and an increase in demand as December rolled around,” Tim Cook said.

Apple, which receives more than half its revenue from outside the Americas, was also harmed by the strong dollar. However, the impact was less severe than anticipated because the dollar fell off its highs of 2021. As a result, Apple stated that the real impact was only 8% despite having previously warned investors that such foreign exchange concerns would have a 10% negative impact on sales.

Tim Cook remarked, “I would point out that 8% is still a very substantial headwind. That is not something I want to undervalue. If we had expanded at a fixed rate of exchange.”

Wall Street experts had predicted that iPhone sales would decline, in addition to supply chain issues, as part of a bigger trend in which the iPhone 14 family debuted in 2022 and sold more slowly after two consecutive years of robust iPhone 12 and 13 models. Instead, Apple reported iPhone sales of USD 65.8 billion, lower than expert expectations of USD 68.3 billion and down 8% from the prior year.

According to Refinitiv statistics, the company’s services division, which includes software and entertainment companies like the App Store and Apple TV+, had a 6% increase in revenue to USD 20.8 billion, exceeding analyst projections of USD 20.7 billion.

Tim Cook also said that, since 2022, the number of active devices in the company’s base has increased from 1.8 billion to 2 billion. According to him, the company currently has 935 million paid subscribers, up from 900 million the previous quarter, and services sales hit records in many areas, including China.

According to Refinitiv data, sales of the company’s Mac computers, which had soared during the wave of people working from home during the epidemic, fell 29% year over year to USD 7.7 billion, vs forecasts of USD 9.6 billion. In addition, the advent of new MacBook Pro laptops with Apple’s CPUs in the prior year resulted in a spike in sales, leading Apple officials to issue a warning that Mac sales would likely decrease yearly.

According to Refinitiv data, sales of the iPad, which also benefited from the epidemic, increased 30% to USD 9.4 billion, exceeding expert projections of USD 7.8 billion. However, according to Refinitiv statistics, the wearable and accessories sector, which includes the Apple Watch and AirPods, decreased by 8% to $13.5 billion from analyst projections of USD 15.2 billion.

Investors at Apple are waiting to see if the business enters new markets in 2023. According to The Information, Apple intends to release a mixed-reality headset in 2022 that might cost around USD 3,000 while simultaneously developing a more cost-effective follow-up model.

Though its workforce never expanded as quickly as those of its competitors, Apple is one of the only big technology companies that has not announced significant layoffs. Instead, it reported having 164,000 employees as of late 2022, an increase of under 20% from its 2019 headcount.

While some businesses, like Meta Platforms Inc., laying off almost 11,000 workers, nearly doubled their workforce between 2019 and 2022.

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