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Apple holiday forecast disappoints on iPad, wearables demand; shares slip

People stand outside an Apple Store as Apple's new iPhone 15 officially goes on sale across China, in Shanghai, China September 22, 2023. REUTERS/Aly Song
People stand outside an Apple Store as Apple's new iPhone 15 officially goes on sale across China, in Shanghai, China September 22, 2023. REUTERS/Aly Song

With lackluster demand for iPads and wearables, Apple (AAPL.O) failed to meet Wall Street estimates with its holiday quarter sales forecast on Thursday. As a result, the company’s shares fell almost 3% in after-hours trading.

Tim Cook, the company’s CEO, emphasized that the new iPhone 15 models were performing well in China to ease Wall Street concerns that Apple was losing market share to Chinese smartphone vendors and a resurgent Huawei. Apple’s revenue from China decreased 2.5% overall in the fiscal fourth quarter that concluded on September 30, but Cook said that after deducting foreign exchange rates, the revenue increased.

Sales for the current quarter, which includes the Christmas holidays and when Apple usually has its highest sales of new iPhone models, will be comparable to the prior year, Chief Financial Officer Luca Maestri told investors on a conference call. Wall Street had anticipated a 4.97% increase in revenue to $122.98 billion.

Apple’s stock, which has increased 37% this year, fell 3.4% after hours in line with expectations. Even though this year’s Christmas quarter includes one fewer week of sales than the previous year’s, Maestri stated Apple anticipates more iPhone sales for the fiscal first quarter.

Bob O’Donnell, principal analyst at TECHnalysis Research, stated, “I’d say it was surprising to see how confident Tim Cook was in future China’s performance given the many potential geopolitical challenges that we know exist for that market.”

Apple surprised Wall Street with its fiscal fourth-quarter sales and earnings on Thursday. The company attributed its success to an increase in iPhone sales and a $1 billion increase in service income, which more than made up for the significant declines in Mac and iPad sales.

Cook stated supply issues with the company’s latest high-end iPhone 15 Pro and Pro Max smartphones. Though Apple has fared better than many of its competitors during the worldwide smartphone collapse, the Cupertino, California-based corporation is facing an uneven rebound in China, a critical market.

“While we believe investors should breathe a sigh of relief because sales and profits both exceeded expectations, the upside was small, and we were concerned to see weak sales from China,” Tom Forte, an analyst with DA Davidson, stated.

LSEG data shows that although Apple’s latest quarter sales decreased by almost 1% to $89.50 billion, they were still higher than expert projections of $89.28 billion. About 11% more money was made net. LSEG reports that the profit per share of $1.46 exceeded consensus estimates of $1.39 per share.

This year, Apple will have more competition in the smartphone industry as Huawei Technologies (HWT.UL), virtually kept out of the market for several years due to trade restrictions imposed by the US government, enters the market with new phones that run on chips built in China.

From $15.47 billion in the fourth quarter of last year to $15.08 billion this quarter, Apple’s sales in China decreased. Cook stated that iPhone sales and service income drove Apple’s year-over-year growth in China, even after taking foreign currency rates into account.

“In mainland China, we set a quarterly record for the September quarter for iPhone,” Cook stated to Reuters. “We had four out of the top five best-selling smartphones in urban China.”

Cook declared that Apple was “working hard to manufacture more” Pro Max and 15 Pro iPhones. “We do believe that later this quarter, we’ll reach a supply-demand balance.”

Right now, Apple’s best-selling product is still the iPhone. LSEG data shows that fourth-quarter sales were $43.81 billion, which aligns with analyst estimates.

“We expect its performance to further improve in Apple’s fiscal first quarter as the supply issues of the top Pro and Pro Max models will be resolved by then,” Nabila Popal, an analyst with IDC, said. She stated, “Demand across regions continues to show a preference for the most premium models, and we expect an even larger proportion” of those models this year compared to the previous.

In the upcoming year, the personal computer industry is also anticipated to do better. This week, Apple released new Mac computers. Nevertheless, compared to forecasts of $8.63 billion and $6.07 billion, respectively, Mac sales fell by a third to $7.61 billion, while iPad sales fell 10% to $6.44 billion.

LSEG data shows that Apple’s wearables division, which includes the Apple Watch and AirPods, had a 3% decline in sales to $9.32 billion, falling short of projections of $9.43 billion. Sales of Macs and iPads have been dropping for Apple for several quarters, and the fourth quarter saw this trend continue.

In contrast to analyst projections of $21.35 billion, sales in Apple’s services division, which includes Apple TV+ and recently completed a partnership with world-renowned soccer player Lionel Messi, increased 16% to $22.31 billion.

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