If you believe the Tame Apple Press, Apple reported stonking results, unlike other companies in the NASDAQ. The only problem with that line is that it is untrue. While Apple did do better than Wall Street’s expectations on earnings and revenue it was pretty much hammered in key areas. In fact if this were any other company, such as Microsoft, the Tech Press would have written it off.
Firstly, Wall Street Analysts expected low results, the economy is tanking, the US dollar is too strong and there is a war in Europe. Wall Street warned that tech companies were going to suffer in this quarter. So saying that Apple narrowly beat Wall Street expectations is not necessary positive, it just limboed under a very low bar.
The company reported earnings before certain costs such as stock compensation of $1.29 per share, just beating Wall Street’s forecast of $1.27 per share. Revenue for the period came to $90.15 billion, up eight per cent from a year ago and ahead of the $88.9 billion consensus estimate. Overall, Apple’s net income came to $20.7 billion, up from $20.5 billion a year earlier. Hardly great.
What was more worrying for Apple investors is that its iPhone cash cow notably fell short of expectations, delivering $42.6 billion in revenue, up 9.6 per cent from a year ago but below the $43.2 billion what it should have been. To make matters worse. Apple CEO Tim Cook said that other smartphone makers are struggling amid lower consumer demand. While he said that the Apple had performed well considering, those sort of statements are not normally seen as such by investors.
Cook said Apple once again managed to grow its number of “switchers,” or people who switch to the iPhone from an Android device. However he warned that supply for the iPhone 14 Pro, which is the company’s highest-end phone, and supposed to pull its nadgers out of the fire in the coming quarter remains constrained. Again Cook is saying clearly, "look it is going to be a mess in the coming quarter -- pretty much like every other tech company."
What should have been more worrying was Apple’s services business, which missed expectations. It delivered revenue of $19.19 billion, below the estimate of $20.10 billion. The services business grew by just under five per cent — a noticeable slowdown from the previous quarter, when it grew by 12 per cent.
The services business is far more profitable than Apple’s hardware and is capable of bringing in significant recurring revenue. For the full fiscal year, Apple services revenue grew by 14 per cent, to $78.1 billion, slower than the 16 per cent growth it recorded in fiscal 2021 and much slower than the 27 per cent growth in 2020.
For those not in the know, Apple’s services business includes online services such as Apple TV+ and Apple Music, revenue generated from the App Store, hardware warranties and also search deals with companies like Google. At the end of the quarter, Apple reported just over 900 million total subscriptions, which includes subscribers to apps through the App Store.
The iPad business also struggled, with sales falling almost 10 per cent from a year ago to $7.17 billion, below the $7.94 billion analyst forecast.
About the only area where Apple did better than its rivals was PC sales which bucked the trend in the wider PC industry, rising 25 per cent to $11.51 billion, far exceeding Wall Street’s estimate of $9.36 billion. Apple’s Other Products segment, which covers products such as AirPods and the Apple Watch, saw revenue jump 9.8 per cent, to $9.65 billion, ahead of the $9.17 billion estimate.
Constellation Research Inc. analyst Holger Mueller said that Steve Jobs would be spinning in his unmarked grave if he heard Apple generated $24 billion in annual operating cash flow, only to return $29 billion back to shareholders. He also said the decline in Apple’s services business was a concern.
However, that is not how you will be reading it in the press which seems to be ignoring the bad stuff and focusing on the good. The reason is probably because a large chunk of the financial and tech press across the pond are Apple fanboys with shares in the company and don't want it to be seen to loss money. But it does seem unfair that while the likes of Microsoft, Google, and Amazon have to face falling share prices for what could be argued are similar or not better results, Jobs' Mob gets a get out of jail free card. The Tame Apple Press campaign appears to have worked. Apple’s stock gained a per cent in extended trading, having slipped by three per cent earlier in the day. In comparison, Microsoft which had similar if not better figures fell by seven per cent.
It is telling that Apple is refusing to prove official guidance for the coming quarter. Chief Financial Officer Luca Maestri expects first-quarter fiscal 2023 revenue to grow less than the 8.1 per cent growth seen in the quarter just gone. He also said the company believes its services business will be hurt by the macroeconomic environment. But if the Tame Apple Press plays the same game in the next quarter, it might be able to snatch victory from the jaws of defeat again.