July 28 (Reuters) – Apple Inc (AAPL.O) said on Thursday that parts shortages were easing and iPhone demand was unrelenting despite other consumer spending tightening, helping it outperform Wall Street expectations and forecast faster sales growth.
Shares of the Silicon Valley giant rose 3.5% after hours following the earnings release.
Although macroeconomic indicators around the world are turning negative, chief financial officer Luca Maestri told Reuters there has been no slowdown in demand for iPhones, the company’s main source of income.
Join now for FREE unlimited access to Reuters.com
Fiscal third-quarter phone sales rose 3% to $40.7 billion, as Wall Street braced for a 3% decline. In contrast, the overall global smartphone market fell 9% in the quarter just ended, according to data from Canalys.
Apple’s loyal and relatively affluent customer base has enabled it to weather declining consumer spending better than other brands in the past, and the company’s latest quarterly results suggest a similar trend is emerging.
Canalys Research analyst Runar Bjorhovde said, “Apple in this sense has a certain robustness that will allow it to be less impacted than many of its competitors.”
Apple offered some caution.
The slumping economy is hurting sales of advertising, accessories and home products, Apple’s Maestri said in an interview, calling the units “pockets of weakness.”
“Fortunately, we have a very large portfolio, so we know we will be able to find our way there,” he added.
The findings show that Apple’s advertising business, which includes selling ads alongside news articles and search results on the App Store, is vulnerable to marketing cuts much like rivals Snap Inc (SNAP .N) and Meta Platforms Inc (META.O).
Parts shortages will continue to hamper Mac and iPad sales, Maestri said, although the impact has waned. They cost Apple less than $4 billion in sales in the quarter ended June 25, less than expected. Maestri said the company expects the hit to decline further in the current quarter.
But Apple risks joining rivals in building up an unsellable stockpile of tablets and PCs if more customers than expected delay purchases due to rising inflation and interest rates.
“In terms of demand testing, you can’t really test demand unless you have supply,” Apple chief executive Tim Cook told analysts on Thursday. “And we were so far out of this last quarter that we have an estimate of what we think demand will be. But it’s an estimate.”
Citing economic uncertainty, Apple said it was not providing specific guidance on revenue. But he said sales from a year ago are expected to grow faster in the current quarter than the 2% growth it posted in the quarter just ended.
Overall, Apple said quarterly sales and earnings were $83.0 billion and $1.20 per share, above estimates of $82.8 billion and $1.16 per share. , according to data from Refinitiv.
The rise in the US dollar has affected many companies such as Apple which generate substantial foreign revenue and receive less money when they convert it. Apple said currency fluctuations reduced sales by 3% in the June quarter and will reduce sales by 6% in the current quarter.
The closure of its operations in Russia earlier this year due to the war also hurt sales.
Apple, like many of its tech industry peers, is slowing hiring and cutting costs given the tough economic climate. read more Cook said Thursday that Apple “was more deliberate in (hiring) in recognition of the realities of the environment.”
More recent economic issues include supply chain disruptions that have affected production of some Apple products such as iPads and Macs whose assembly sites were clustered near areas of China that have been blocked by COVID.
As sales of iPhones and iPads beat expectations, revenue from services, Mac computers and accessories missed Wall Street targets and sales in the crucial China market fell 1%, consumers being stuck there, limiting sales.
Apple is also facing sluggish overall economic growth in China, where its fiscal third-quarter sales were $14.6 billion.
Growth in the company’s services business, which has driven sales and profits in recent years, was 12%, down from 33% a year earlier and generated $19.6 billion of revenue, below estimates of $19.7 billion.
Apple said it now has 860 million paying subscribers to its services, up from 825 million in the previous quarter.
iPad and Mac sales were $7.2 billion and $7.4 billion, compared to estimates of $6.9 billion and $8.7 billion. Mac sales represented a 10% contraction, after record sales since 2020, driven first by an increase in working from home and then by new Apple proprietary processor chips.
Its shares closed Thursday down about 11% so far this year, slightly less than the broader S&P 500 index (.SPX) and also less than other consumer hardware makers such as Sonos Inc. (SONO.O) and Samsung Electronics Co (005930.KS), the only company that sells more smartphones than Apple. Read more
Join now for FREE unlimited access to Reuters.com
Reporting by Stephen Nellis, Nivedita Balu and Paresh Dave; Editing by Peter Henderson and Lisa Shumaker
Our standards: The Thomson Reuters Trust Principles.