Daily Management Review

Despite Exceeding Sales Projections, Apple Predicts A Continued Decline In Sales, And Shares Are Down 2%.


Despite Exceeding Sales Projections, Apple Predicts A Continued Decline In Sales, And Shares Are Down 2%.
Despite exceeding Wall Street sales and earnings projections in the fiscal third quarter, Apple anticipated that a sales downturn would last into the current quarter, driving shares lower.
After Apple estimated that its sales may have declined for the fourth consecutive quarter, the company's shares fell by around 2%. Stronger than anticipated sales of Apple's most well-known product, the iPhone, disappointed investors during the recently finished period, but the profit beat was driven by success in services. Executives predicted an increase in iPhone sales in the fourth quarter, although they did not specify by how much.
While its next big product, the Vision Pro mixed-reality headset launched in June, is still out of reach for most customers, Apple is in a precarious situation with its well established iPhone fighting for market share against Android rivals in a mature market.
Apple reported that its fiscal third quarter ended on July 1 saw a 1.4% decline in revenue to $81.8 billion and an increase in earnings per share of $1.26. Based on IBES statistics from Refinitiv, that exceeded analyst projections of $81.69 billion and $1.19 per share. Strong sales in the services sector, which includes Apple TV+, and sales in China, which increased 8% year over year, offset weaker iPhone sales.
Apple's fourth fiscal quarter, which ends in September, will see year-over-year revenue performance comparable to the decline the firm revealed on Thursday, according to Apple Chief Financial Officer Luca Maestri. According to Refinitiv data, that sales forecast falls short of analyst predictions for essentially flat fiscal fourth-quarter sales of $90.19 billion.
"There is a real concern about when volume picks up and what the horizon is for iPhone sales growth," said Daniel Newman, chief executive and principal analyst at research firm Futurum Group.
According to Refinitiv statistics, Apple estimated the gross profit margin for the September quarter to be between 44% and 45%, exceeding analyst projections of 43.4%. Sales of the iPad and Mac will decline by "double digits," according to Maestri, even though Apple anticipates growth in its service division, which includes Apple TV+.
Additionally, Apple has spent $22.61 billion on R&D so far this fiscal year, or approximately $3.12 billion more than at the same time last year.
The work on generative artificial intelligence, which is driving spending at other major technology companies, was a contributing factor, Apple Chief Executive Officer Tim Cook told Reuters in an interview.
"We've been doing research across a wide range of AI technologies, including generative AI, for years. We're going to continue investing and innovating and responsibly advancing our products with these technologies to help enrich people's lives," Cook said. "Obviously, we're investing a lot, and it is showing up in the R&D spending that you're looking at."
Meanwhile, Apple seems to outpace China's smartphone market, which has been struggling for almost a decade. According to Counterpoint Research, overall smartphone sales in China dropped 8% in the second quarter of the calendar year to their lowest levels since 2014. Cook, though, told Reuters that sales of Apple's iPhone increased in China by "double digits" and that they were also strong in other markets.
This assisted Apple in increasing sales in the larger China region from $14.60 billion in the same quarter last year to $15.76 billion this quarter.
"This was really done by attracting a quarterly record of switchers to the iPhone, as well as having a strong upgrader activity," Cook said. "We also set quarterly records in China for both wearables, home and accessories, and services."
According to Refinitiv statistics, Apple reported iPhone sales of $39.67 billion, which fell short of analyst projections of $39.91 billion. Although Cook did not provide any figures, the installed base of iPhones reached a new high.
"The company continues to face headwinds caused by waning growth in the smartphone market," said Insider Intelligence analyst Jeremy Goldman. "All eyes are now on its earnings call for any potential Vision Pro or AI-related announcements that could further push the boundaries of their business model."
According to Refinitiv statistics, Apple's services sector, which includes its Apple TV+ service, which just inked a deal to carry Major League Soccer, had revenue of $21.21 billion, exceeding analyst projections of $20.76 billion.
Cook claimed that, up from 975 million a quarter ago, Apple now has 1 billion subscribers on its platform, which includes both Apple services and third-party apps.
Refinitiv data shows that the company's wearables division, which sells products like the Apple Watch and AirPods, generated $8.28 billion in revenue as opposed to the $8.39 billion analysts had predicted.
Refinitiv data shows that Mac and iPad sales were $6.84 billion and $5.79 billion, respectively, versus analyst projections of $6.62 billion and $6.41 billion.
"Almost half of the Mac buyers during the quarter were new to the product, and we continue to see strong upgrader activity to Apple Silicon," Cook told Reuters.