ii view: records tumble at Apple

Microchip supply constraints are evident but is the worst now over? We assess prospects.

First-quarter results to 25 December

• Revenue up 11% to $123.9 billion (£92.9 billion)
• Earnings per share up 25% to $2.10
• Dividend of $0.22 per share, unchanged from the previous quarter
• Returned nearly $27 billion to shareholders

Chief executive Tim Cook said: 

“This quarter’s record results were made possible by our most innovative line-up of products and services ever. We are gratified to see the response from customers around the world at a time when staying connected has never been more important. 

"We are doing all we can to help build a better world — making progress toward our goal of becoming carbon neutral across our supply chain and products by 2030, and pushing forward with our work in education and racial equity and justice.”

ii round-up:

Smartphone maker Apple (NASDAQ:AAPL) reported record quarterly sales of $123.9 billion (£92.9 billion) and eased concerns regarding microchip supply challenges as it flagged an improving trend. 

Sales for its core iPhone product rose 9% year-over-year to $71.63 billion (£53.7 billion) with sales for services including app store fees and iCloud data storage rising 24% to $19.52 billion. 

Apple shares rose by around 5% in after-hours US trading, having previously fallen by more than 10% year-to-date. Shares for rival smartphone software maker and advertising giant Alphabet (NASDAQ:GOOGL) are down by a similar amount during 2022. So is Windows desk-top software maker Microsoft (NASDAQ:MSFT). 

Apple profits beat Wall Street forecasts, with earnings per share of $2.10 per share compared to analyst estimates nearer $1.90. The biggest US company by stock market value, again due to the pandemic, offered no earnings guidance for this latest quarter to the end of March, but did point to better current microchip availability compared to the December quarter just finished.    

Sales for its Mac laptops rose by 25% year-over-year to $10.85 billion, aided by the October launch of its new MacBook Pro product. Sales for its other products category including watches and Air pods grew by 13% to $14.7 billion. 

• US stock market outlook 2022: more record highs for Wall Street?
• Want to buy and sell international shares? It’s easy to do. Here’s how
• Subscribe for free to the ii YouTube channel for our latest share tips and fund manager interviews

Only iPad sales fell, down 14% year-over-year to $7.25 billion, constrained by supply chain challenges and management’s move to prioritise chips to other products, leaving it unable to produce sufficient units to satisfy customer demand. 

Geographically, sales in Greater China shone, growing by almost 21%, followed by growth of 19% in Asia Pacific. Demand across its home North American region rose 11%. Only sales in Japan retreated, falling 14%.

Apple results to the end of March are likely late April. 

ii view:

The huge success of Apple’s iPhone products both pleases and concerns at the same time.  Sales of its smartphones accounted for almost 58% of overall Apple sales in this latest quarter. A new version of the iPhone to maintain sales momentum has become a regular autumn event. Developing other products such as wearables including watches and services to diversify sales is also ongoing. 

For investors, supply chain challenges and their impact on production cannot be completely dismissed. Costs for companies are rising given a backdrop of elevated inflation and the West’s relationship with China, a key Apple market, remain strained. Environmental concerns also warrant consideration.   

But the move to 5G phones and faster data download speeds does appear to support customer demand momentum. Major US mobile phone network provider Verizon (NYSE:VZ) has only recently activated its new 5G networks. Tying in customers to its services generates high loyalty, and although relatively small in yield terms at under 1%, a dividend continues to be paid. In all, and with the consensus analyst estimate of fair value per share stood at $180, Apple shares look to remain deserving of a place in many diversified long-term portfolios.  

Positives:

• Diverse geographical markets
• Strong customer loyalty

Negatives:

• High dependency on iPhone sales
• Strained relations between the West and China

The average rating of stock market analysts:

Buy