Apple
executives said revenue for the current fiscal fourth quarter will grow by
double-digits but be below the 36.4 percent growth rate in the just-ended third
quarter. Growth will also slow in Apple's closely watched services business,
they said.
In a conference
call with investors, Apple executives also said that while the impact of the
chip shortage was less severe than feared in the third quarter, it will get
worse in the fourth, extending to iPhone production.
Shares of Apple, whose valuation has more than doubled in
about three years to nearly $2.5 trillion, were down 1.7 percent to $144.24 in
after-hours trading after the call.
Earlier in the day, Apple reported third-quarter sales and
profits that beat analyst expectations as consumers bought premium versions of
its 5G iPhones and signed up for its subscription services. China sales grew 58
percent to $14.76 billion in the quarter, which ended June 26.
Driven by the better-than-expected iPhone sales, total
revenue hit $81.43 billion above analyst expectations of $73.30 billion
according to IBES data from Refinitiv. Apple's profits were $21.74 billion or
$1.30 per share, above estimates of $1.01 per share, according to Refinitiv.
During the investor call, Chief Executive Tim Cook said that
chips affected by the shortages are made with older technology but are still
needed as supporting parts to make the company's flagship device, the iPhone.
"We do have some shortages," Cook said,
"where the demand has been so great and so beyond our own expectation that
it's difficult to get the entire set of parts within the lead times that we try
to get those."
Cook declined to predict whether the shortages would last
into Apple's fiscal first quarter, when it typically sees its biggest iPhone
sales. Angelo Zino, an analyst with research firm CFRA, said Apple could be
stockpiling chips for its next generation of phones to the detriment of current
models.
"Apple will want as many chips as it can get its hands
on," Zino said. "But when you couple that with the existing supply
constraints, Apple is likely going to have a more difficult time meeting demand
this year."
Apple had told investors last quarter that the chip shortage
could hold back sales by $3 billion to $4 billion.
In an interview on Tuesday, Cook told Reuters that the hit
to overall revenue in the third quarter was "lower than the low end"
of its previously forecasted range.
China, 5G
Apple's strongest sales growth came from China, where Cook
told Reuters that customers are buying up accessories such as the Apple Watch
to pair with their iPhones.
"It wasn't just iPhone. We set a new quarterly record
for Mac, for wearables, home and accessories, and for services" in China,
Cook said. "It was our strongest geography."
Upgrading for 5G appeared to be driving a better buying
cycle for iPhones than many analysts expected. Apple said iPhone sales were
$39.57 billion up nearly 50 percent from a year earlier and above analyst
expectations of $34 billion.
Cook told Reuters that Apple's iPhone 12 Pro and iPhone 12
Pro Max, the premium tier of the device, were strong sellers. That helped
pushed gross margins to 43.3 percent, above estimates of 41.9 percent,
according to Refinitiv.
On the conference call, he said 5G adoption is in its early
stages of deployment in many countries around the world. Some analysts wondered
whether that means the boom in 5G iPhone sales won't last - consumers may buy a
phone ahead of time and keep it until the service rolls out. Other analysts
believe that means Apple can keep riding the boom.
"The low 5G penetration is a reminder that the best is
yet to come for the company's 5G iPhones," said Tom Forte, an analyst at
D.A. Davidson & Co.
The other major driver of Apple's results was its services
business, which includes paid subscriptions for television and music as well as
its App Store. Services revenue reached a record high of $17.49 billion, up by
a third from a year earlier and above analyst expectations of $16.33 billion.
Cook told Reuters that Apple now has 700 million subscribers on its various
platforms, up from 660 million a quarter earlier.
Chief Financial Officer Luca Maestri told investors that
services growth will slow, however.
"We expect still-significant growth in services but not
to the level that we've seen in June," he said on the call.
Cook said Apple set quarterly sales records in many of its
first-party services, including its AppleCare hardware insurance plans, which
had slowed somewhat during the pandemic when many of the company's retail
locations were closed.
Sales of iPads and Macs were $7.37 billion and $8.24 billion,
compared with analyst expectations of $7.15 billion and $8.07 billion,
according to Refinitiv data.
© Reuters
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