Apple CEO Tim Cook said three factors hurt the results: a
strong dollar, production issues in China affecting the iPhone 14 Pro and
iPhone 14 Pro Max, and the overall macroeconomic environment.
“On the third factor, I would say was just the challenging
macroeconomic environment, and you’re hearing that from, I would think,
everybody,” Cook told CNBC’s Steve Kovach.
Apple shares dropped over 4% at one point during extended
trading on Thursday before rising after the tech giant provided data about
outlook for the current quarter. The company’s data points suggested iPhone
sales won’t decline as rapidly as they did during the holiday quarter.
Apple did not provide guidance for the current quarter
ending in March. It hasn’t provided guidance since 2020, at first citing
uncertainty caused by the pandemic. Analysts expected the company to guide to
about $98 billion in sales in the company’s fiscal second quarter.
However, Apple did offer some data points on performance
expectations. Chief Financial Officer Luca Maestri said March quarter revenue
would have a similar declining trend as the December quarter. Services are
expected to grow, Maestri said, but Mac and iPad sales are both expected to
decline double digits from the year-earlier period. IPhone sales will decline
less in the March quarter versus the December quarter, Apple added.
The quarter was a stunning miss by Apple, and its first
earnings miss versus consensus expectations in almost seven years. In fact, it
was only its second revenue miss since August 2017, with sales coming in more
than 3% below consensus expectations.
It also represented a regression from Apple’s success over
the past two years driven by a need for new computers to work and go to school
from home. It was Apple’s first year-over-year quarterly revenue decline since
2019 and the biggest annual quarterly revenue drop since September 2016.
Cook told CNBC that the miss was partially because of a
strong dollar. He said Apple grew in most markets if you controlled for 800
basis points of foreign exchange headwinds. A basis point equals 0.01 of a
percentage point.
Cook added that the supply of iPhone 14 Pro and iPhone 14
Max was significantly reduced during the quarter, meaning there were fewer
phones to sell to customers. The primary iPhone assembly plant in China was
affected by Covid lockdowns during the quarter, a warning that had been made to
investors in November.
“We put out an update
on that on November 6th and it lasted through most of December,” Cook said “So
we had a big hole there.”
The Apple CEO said that production is now back to levels
Apple is comfortable with.
Cook said the challenging macroeconomic environment affected
iPhone sales, Mac sales, and sales of wearables like the Apple Watch. IPhone
and Mac sales were down year over year. Apple’s other products category, which
includes headphones like AirPods and wearables like Apple Watch, declined over
8%.
Cook said Mac sales fell because it was difficult to compare
the quarter to last year’s period, in which the company released new high-end
MacBook Pro laptops. There were no similar launches during this year’s December
quarter, he noted.
The report offered investors a few bright spots. First,
Apple disclosed that it has 2 billion active devices, including iPhones, Macs,
Apple Watches, and other products, an increase from the 1.8 billion active
devices it revealed last year in January.
The number is important to investors because it summarizes
the company’s global reach and suggests upside if the company can better
monetize those customers through services or other additional products.
“We attribute that to having a lot of switchers and a lot of
first-time buyers in the case of the Apple Watch,” Cook said. “And so obviously
you need to bring in people that are not currently active on a device in order
to grow.”
IPad sales grew nearly 30% year over year after it released
a low-end, inexpensive model as well as a new high-end model during the
quarter. It’s a redeeming area in Apple’s hardware business and is a reversal
of last December quarter, in which Mac revenue surged and iPad’s revenue
fell.
One other silver lining for investors: Apple reported 6%
growth in its services business, beating analyst expectations.
Management said cloud services, payments including Apple Pay
and Apple Card, and music were strong components of services. Cook added that
Apple employees are beta testing a buy-now-pay-later feature that will be part
of services. “It will be launching
soon,” he added.
Cook said that Apple is cutting costs and has slowed hiring.
But it has not announced layoffs unlike many rival tech companies.
“We’re also recognizing the environment that we’re in is
tough. And so we’re cutting costs. We’re cutting hiring, we’re being very
prudent and deliberate on people that we hire,” Cook said.
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