Apple braces for unfavourable times ahead amid supply chain issues and dent in sales
Apple has forecast bigger problems ahead as Covid-19 lockdowns snarl up production and demand in China, the war in Ukraine dents sales and growth slows in services, which the iPhone maker sees as its engine for expansion.
The company’s shares were down by 2.1 per cent after executives laid out their glum outlook on a conference call. The news outweighed strong results, including record profit and sales, for Apple’s second quarter, which ended last month.
Chief financial officer Luca Maestri warned in an interview that the war in Ukraine, which led Apple to stop sales in Russia, would leave a bigger dent on sales in the third quarter.
He told analysts on the call that supply chain issues would hurt sales in the quarter by US$4 billion to US$8 billion, “substantially larger” than the hit in the second quarter.
The supply chain problems were focused on a corridor in Shanghai and reflected Covid-19 disruptions and silicon shortages, he said, adding that the pandemic was also affecting demand in China.
Chief executive Tim Cook said most of the Chinese factories doing final assembly of Apple products had restarted after Covid-19 shutdowns, but the company was not in a position to forecast when a silicon shortage would end.
Cook said he hoped pandemic-related issues would be “transitory” and “get better over time”.
At least one analyst said the outlook lacked clarity.
“We were all looking for just better guidance on what is really going on [in China] … and that didn’t come out,” said Louis Navellier, chief investment officer for Navellier & Associates.
Kim Caughey Forrest, chief investment officer at Bokeh Capital Partners, said demand issues remained a big question, even though the company managed supply chain issues in the last quarter.
Other high-profile tech companies have also raised concerns. Amazon posted a disappointing outlook as it was swamped by higher costs, sending its shares down by 9 per cent, and Intel forecast a gloomy quarter because of supply chain issues, with its stock falling by 4 per cent.
Apple’s overall second-quarter revenue was US$97.3 billion, up by 8.6 per cent from last year and higher than analysts’ average estimate of US$93.89 billion, according to Refinitiv data.
The company’s worldwide revenue from phone sales was US$50.6 billion, a 5.5 per cent increase from a year ago, and services sales rose by 17 per cent to US$19.8 billion, both ahead of average analyst forecasts.
However, Maestri said that services growth would decelerate from the March quarter, while remaining in double-digits. He cited several contributing factors, including more unfavourable currency exchange rates.
Apple’s profit was US$25 billion, or US$1.52 per share, which topped analysts’ expectations of US$23.2 billion or US$1.43 per share.
The company also raised its dividend by 5 per cent to 23 US cents per share and the board approved a buy-back for an added US$90 billion in shares.
Investors have been bracing for drops in consumer spending on tech gadgets and services as the war in Ukraine and other factors drive up the costs of oil, food and other staples.