Apple’s sales and earnings are best estimates as chip shortages ease

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Jan 27 (Reuters) – Apple Inc (AAPL.O) is weathering a costly global shortage of computer chips, posting record sales in the holiday quarter, beating profit estimates and expecting its deficit to narrow.

The iPhone maker, which is the world’s largest company by market capitalization, has handled supply chain challenges such as pandemic-induced factory closures and shipping delays better than ever before. any of its major peers, analysts said. Apple shares rose about 5% in after-hours trading, erasing half of their losses for the year. The gains came after the company teased its augmented reality ambitions in the Metaverse.

More people wanted iPhones, iPads and other gadgets in the holiday quarter than Apple had to sell, costing the company more than $6 billion in sales, or so that she feared. Yet Apple, which is the biggest customer of many parts vendors, has used its buying power to force those vendors to ship enough gadgets to generate record sales in its iPhone, Mac, and wearables and accessories segments. Apple executives said chip shortages mainly affected older models of its products and particularly slowed iPad sales.

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“They’ve navigated the supply chain better than everyone else, and it shows in the results,” said Ryan Reith, who studies the smartphone market for industry tracker IDC.

The four best-selling phones in urban China were all iPhone models, Apple said, as competitors struggled to manufacture rival offerings. It was China’s top-selling vendor for the first time in six years, research firm Counterpoint Research reported on Wednesday.

Nicole Peng, who tracks China’s smartphone sector at research firm Canalys, said relatively low prices and the withdrawal of main rival Huawei from the market led to a strong quarter.

Peng said Apple was unlikely to repeat this quarterly performance this year, given that it was driven by one-time factors. However, she said the company could still have a strong 2022 if Chinese consumers warm up with a new iPhone SE, which is expected to be released this year.

Apple’s growing sales of services such as music, TV and fitness subscriptions are also helping to soften the blow from the low supply of devices. The company said it now has 785 million paying subscribers across its at least seven subscription offerings, up 40 million from last quarter and easing investors concerned about slowing growth from rivals such as Netflix Inc.

Better still, Apple’s chief financial officer Luca Maestri told Reuters that easing chip shortages should mean less than $6 billion in lost revenue in the current quarter. But he declined to estimate further in the future.

“The level of constraint will very much depend on other companies, demand for chips from other companies and other industries,” he said.

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Pedestrians walk past an Apple store as Apple Inc. reports its fourth quarter results in Washington, U.S., January 27, 2022. REUTERS/Joshua Roberts

The iPhone 13, which began shipping a few days before the start of the quarter, led to worldwide phone sales revenue for Apple of $71.6 billion, a 9% increase from the 2020 holiday season that easily exceeded Wall Street targets, according to Refinitiv data. Maestri attributed the rise in sales to a record number of upgrades from older iPhones and double-digit growth in the number of people leaving rivals.

Apple’s overall first-quarter revenue was $123.9 billion, up 11% from a year ago and above analysts’ average estimate of $118.7 billion of dollars. Earnings were $34.6 billion, or $2.10 per share, versus analysts’ expectations of $31 billion and $1.89 per share.

Maestri, however, warned that revenue growth will slow in the current quarter compared to the December quarter, mainly due to less favorable exchange rates and different product launch dates.

Apple’s only category segment to miss sales expectations was the iPad. Sales fell 14% to $7.25 billion from analysts’ estimates of $8.2 billion, appearing to confirm industry predictions that tablets would have a low priority for rare coins.

Services, Apple’s second largest segment after iPhones, increased sales 24% to $19.5 billion.

Mac computer revenue grew 25%, and Apple said the past six quarters had been the best for Mac sales.

The pandemic has accelerated the adoption of digital tools for communication, learning and entertainment, allowing Apple to skyrocket sales over the past two years.

But this year investors have moved funds into safer assets and away from tech stocks such as Apple which have soared during the pandemic as people spend more time online.

Wall Street wondered how long it would take Apple to deliver its next big thing, like an augmented reality (AR) headset for the Metaverse.

“We see a lot of potential in this space and are investing accordingly,” Chief Executive Tim Cook told investors Thursday.

Apple also faces antitrust pressures in the United States and Europe that could lead to new regulations that would reduce its services revenue.

Late last month, the Dutch Authority for Consumers and Markets (ACM) ordered Apple to make changes to apps offered in the Apple App Store in the Netherlands by January 15 or to face fines, after finding that the American company had abused its market. dominance by requiring dating app developers to exclusively use Apple’s in-app payment system.

Yet Apple is trading at 27 times expected earnings over the next 12 months. Although down from 35 a year ago, it remains above the company’s five-year average of 20 times expected earnings, according to Refinitiv.

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Reporting by Danielle Kaye in New York, Paresh Dave in Oakland, California, and Nivedita Balu in Bengaluru; Editing by Kenneth Li, Peter Henderson and Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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