Apple Inc. AAPL 4.52% warned on Thursday that the revival of Covid-19 in China threatens to hamper sales by as much as $ 8 billion in the current quarter – a failure after seeing improvements in the supply chain in the first three months of the year.
Guidelines from the iPhone maker came Thursday shortly after the company released one of the best quarters in its 46-year history. The shock of the news caused the company’s shares to shake in trading on secondary markets – first rose 2%, then fell more than 5%.
Many investors expected an outbreak in the quarter from January to March and agreed with all indications from CEO Tim Cook about his outlook on the future amid high inflation, blocking the pandemic in China and the war in Ukraine.
“I want to acknowledge the challenges we see from supply chain disruptions caused by both Covid and silicon shortages to the devastation of the war in Ukraine,” Mr Cook told investors. “We are not immune to these challenges.”
New sore points for the Cupertino, California-based company are coming as areas around Shanghai, where Apple has many vendors, face government blockades aimed at curbing Covid-19 infections.
“Supply constraints caused by Covid disruptions and industry-wide silicon shortages are affecting our ability to meet customer demand for our products,” said Luca Maestri, Apple’s chief financial officer, during a public conference. conversation.
Mr Maestri said the restrictions would hurt $ 4 billion to $ 8 billion in revenue in the three months to June. The blockade is also expected to reduce demand in China.
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The challenges come after a quarter of a blockbuster. Apple’s revenue for the last period increased by 9% to $ 97.3 billion, far exceeding analysts’ expectations of $ 94 billion. Earnings per share rose to $ 1.52 from $ 1.40 a year earlier, surpassing estimates of $ 1.42 per share and set a record for Apple’s second fiscal quarter.
The results reflect the company’s ability during this period to meet supply chain challenges that excite the technology and automotive industries, allowing the company to sell more iPhones than Wall Street expected. “Supply constraints were significantly lower than we experienced in the December quarter,” Mr Cook said in an interview Thursday.
“Covid is hard to predict,” Mr Cook added during the conference call. He noted that “almost all affected factories for final assembly have already restarted.”
Apple’s outlook added to the turbulent afternoon as investors worried about the overall economy. Shares of Amazon.com Inc. fell more than 10% after the e-commerce giant reported its first quarterly loss since 2015 due to a slowdown in sales growth.
Apple’s results were in line with guidelines from January, when the company forecast a record for the March period, albeit at a slower pace than the previous quarter – which included the Christmas holidays – when the company posted record revenue and profits thanks to the most the new iPhones, Macs and iPads.
The $ 97 billion quarter is the third best in Apple’s history in terms of total revenue, but one of the slowest to grow since the pandemic began more than two years ago. The company saw double-digit growth on an annual basis every quarter since the launch of the first iPhone with 5G capabilities in October 2020.
Daniel Morgan, a senior portfolio manager who focuses on technology at Synovus Trust Co., which Apple considers one of its largest holdings, called supply chain concerns, Covid-19 and inflation “the biggest street concerns” for the current quarter. Bernstein Research analyst Tony Sakonagi reiterated this opinion in a note this week, predicting solid quarterly results and asking, “But then what?”
In January, Mr Cook said he expected the effects of supply chain challenges to improve in March compared to the last three months of 2021, when Apple estimated it was losing more than $ 6 billion in sales due to inventory constraints. .
But his optimism came before the pandemic broke out again in Asia and the war broke out in Europe. Apple vendors in China were hit this month by severe government blockades aimed at curbing the spread of Covid-19. Loup Funds estimates that 85% of Apple’s products are assembled in China, while the region accounts for nearly 20% of the company’s annual sales.
In January, Mr Maestri warned that the March quarter would face an unusual comparison to the previous year. IPhone sales were more stable than normal in the comparable period of 2021, as the delays associated with the pandemic disrupted the typical autumn launch and repelled these sales. Total sales a year earlier increased by 54%.
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IPhone sales rose 5 percent to $ 50.6 billion in the last quarter from a year earlier. Analysts expected growth of 1%. The company no longer discloses sales of smartphone units, which account for about half of Apple’s annual revenue.
These sales may have benefited from strong demand in China, where the latest iPhones have resonated with consumers, analysts said. They attribute some of the expected decline in Apple’s iPad sales, giving priority to iPhone production over the period. IPad sales fell 2.1 percent to $ 7.6 billion. Mac sales rose 15 percent to $ 10.4 billion, well above analysts’ expectations of equal results.
In an interview Thursday, Mr Cook said the iPad’s performance was hampered by “very significant supply constraints”.
Amid the slowdown in device sales, digital content sales are back in focus. The so-called services segment, which includes iTunes and the App Store, grew 17% to $ 19.8 billion in the three months to March. Analysts expected growth of 17%.
Write to Tim Higgins at Tim.Higgins@WSJ.com
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