Lightning strikes for Apple again, but storm clouds are on the horizon

Lightning strikes for Apple again, but storm clouds are on the horizon


Apple warns that supply chain constraints will take a heavy toll in coming months.
Apple warns that supply chain constraints will take a heavy toll in coming months.
Photo: Raychel Sanner/Unsplash License/Cult of Mac

The first three months of 2022 were good to Apple, with revenue setting a quarterly record. But the company warned on Thursday that problems getting components and assembling products will take a nasty chunk out of revenue for the current quarter. The hit will to be between $4 billion and $8 billion.

But there’s also plenty of good news in from the conference call CEO Tim Cook had with investors after Apple’s March quarter results were announced.

Don’t call it ‘revenue guidance,’ but an up-to $8 billion hit could be coming next quarter

Apple has become known since 2020 for not issuing revenue guidance for upcoming quarters due to the pandemic’s unpredictable effects on markets. But CFO Luca Maestri dangled some alarming possibilities for the upcoming quarter on Apple’s earnings call Thursday.

He said a number of factors could ding Apple to the tune of $4 billion to $8 billion in the next quarter, even if COVID-19’s impacts don’t worsen.

“Supply constraints caused by COVID-related disruptions and industry wide silicon shortages are impacting our ability to meet customer demand for our products,” he said. “We expect these constraints to be in the range of $4-to-$8 billion, which is substantially larger than what we experienced during the March quarter.”

Maestri added that COVID is having a negative impact on customer demand for products in China.

“With respect to foreign exchange, we expect it to be a nearly 300 basis point headwind to our year over year growth rate,” he said.

And to a lesser extent — 150 basis points — he said Apple pausing all sales in Russia during the past quarter because of the war in Ukraine will also hurt Cupertino’s bottom line. – David Snow

M1 helps drive 7 best quarters ever for Mac business

As both CEO Tim Cook and CFO Maestri mentioned on Apple’s earnings call, iPhone, Mac and wearables all had their best-ever March quarter. But the Mac business stood out by bringing in $10.44 billion versus the $9.23 billion analysts expected, despite supply constraints.

Much of that success came with the popularity of the new M1 MacBooks, as well as an impressive number of first-time buyers across Macs in general.

“Our continued innovation and investment in Apple silicon has clearly shown in our Mac results as the last seven quarters have been the best seven quarter ever for Mac,” Maestri pointed out. “In fact, we had a March quarter record for upgraders while at the same time nearly half of purchasing a Mac were new to the product.”– David Snow

People everywhere love their iPhones

Remember when everyone talked about “peak iPhone” — and how Apple was doomed as a result? The iPhone 13 lineup and the more-affordable, third-gen iPhone SE drove iPhone revenue up 5% year over year to a March quarter record of $50.6 billion, Maestri said.

“We set March quarter records in both developed and emerging markets,” he added. “And the latest survey of U.S. consumers from 451 Research indicates iPhone customer satisfaction of 99% for the iPhone 13 family.”

The savvy strategy of releasing smartphones at various price points helped Apple put iPhones in more people’s hands than ever.

“As a result of this level of sales performance, combined with unmatched customer loyalty, the iPhone active installed base reached a new all-time high across all geographies,” Maestri said. – Lewis Wallace

Apple Watch and AirPods continue to dominate

Apple’s squishy “wearables, home and accessories” category – which includes Apple Watch and the AirPods lineup – set a March quarter record of $8.8 billion in revenue, Maestri said. That’s up 12% year over year, and the company achieved record March quarter revenues in both developed and emerging markets.

“Our wearables business has doubled in three years and is nearly the size of a Fortune 100 business as we continue to attract many customers who are new to wearables,” Maestri said. – Lewis Wallace

Apple’s supply constraints strike iPad again

In the March quarter, there was revenue growth in every Apple product category… except iPad. There was a year-over-year drop in tablet revenue for the second quarter in a row. Both times, Apple’s CFO blamed it on his company’s inability to get the chips needed to make iPads.

In Thursday’s conference call, Maestri said, “We grew in each of our product categories except iPad, which remains significantly supply constrained throughout the quarter.”

Apple's supply constraints strikes iPad again
iPad is pulling in plenty of cash, but not as much as it could be.
Chart: Ed Hardy/Cult of Mac

As noted, all Apple products are facing supply constraints, but tablets are a standout. The company has faced problems getting components for all its products for many months, but it’s only iPad that is affected enough to drop quarterly revenue below what it was in 2021.

Apple execs make a point of saying iPad’s problem is supply constraints, not weak demand. “As you can tell, even from our website, most of the iPad and Mac models are constrained today. They’ve been constrained for several quarters because the demand is very good for those products.”

And it doesn’t look like Apple’s supply constraints problem is not getting better any time soon. – Ed Hardy

A quarter so strong it surprised even Apple

When answering a question about performance in various regions, Maestri painted a picture of surprising worldwide success.

“Americas was better than our expectations,” he said, saying Apple was “very, very happy across the board” with its 19% growth there. The company notched another March quarter record in China, he said. And Apple even performed well in Europe, despite the disruption caused by Russia’s invasion of Ukraine in late February.

“A number of European countries, particularly in Western Europe, did really, really well for us, and so it was it was a very good quarter for us pretty much in line with our expectations,” Maestri said.

Just imagine if the worldwide chip shortage didn’t bite Apple’s supply chain.

“Our results would have been obviously better without the supply constraints,” he said. “Overall, we felt very good about the performance around the world.” – Lewis Wallace


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