Apple says it faces ‘significant’ headwinds from strong US dollar

Apple said it faced a tough December quarter as it faced “significant” headwinds in the currency market and supply issues for its latest iPhone models.

“Overall, we believe the company’s year-over-year total revenue performance will slow in the December quarter compared to the September quarter,” Chief Financial Officer Luca Maestri said during an interview. of an earnings call on Thursday.

The cautious outlook came as Apple reported revenue of $90.1 billion in the September quarter, an 8% year-over-year increase. That beat forecast by $88.9 billion and compared to $83.4 billion a year ago, according to Refinitiv.

Apple posted a slight increase in net profit to $20.7 billion from estimates of $20.5 billion in a quarter that otherwise hurt Big Tech’s profits. In contrast, Amazon’s net income fell by 9%, Microsoft’s by 14%, Alphabet’s by 27% and Meta’s by 52%.

Earnings per share rose 4% to $1.29, higher than expected, despite nearly 6 percentage points of currency headwinds on the strength of the dollar and fears that demand consumers will not weaken in the event of an economic downturn.

Revenue from its services division, which includes App Store purchases and has been Apple’s main growth driver in recent years, fell short of forecasts, rising just 5% for reach $19.2 billion. Analysts were expecting more than $20 billion.

Maestri reported a headwind of “nearly 10 percentage points,” or about $12 billion, based on current revenue estimates, due to dollar currency effects.

He said the company expects Mac computer revenue to “decline significantly year-over-year” in the current quarter, after jumping 25% last quarter to 11, $5 billion.

“The strong dollar is so strong that it will hurt Apple’s next quarter as much as what Nike sees in an entire quarter of sales,” said Mirabaud analyst Neil Campling.

iPhone sales, which accounted for 47% of all revenue last quarter, rose 10% to $42.6 billion, below estimates of $43.2 billion. Analysts have been watching closely to see how the new iPhone 14 lineup fared ahead of the important holiday quarter.

CEO Tim Cook says customer demand for the latest line of iPhones is strong, but Apple’s supply of the more expensive Pro and Pro Max models has been “limited” since launch .

“We continue to be limited today so we are working very hard to meet demand,” he said.

The services division will also face challenges around “currency exchange, digital advertising and gaming,” Maestri said. This division now has more than 900 million people paying recurring fees for digital subscriptions. Margins fell about 1% from the previous quarter to 70.5%, “mainly due to exchange rates”, according to Maestri.

Apple the shares fell as much as 5% in after-hours trading after the release, before reversing to end up 0.4%. Its stock has fallen by more than a fifth this year, against a 32% drop in the tech-heavy Nasdaq index.

Total revenue was “better than we expected at the start of the quarter despite the exchange rate being a significant headwind,” Maestri said.

Apple’s sales in China last quarter rose 6% to $15.5 billion. In the Americas, its largest region, revenue rose 8% to $39.8 billion.

Prior to the results, some analysts had expressed concern about Supply Chain woes, which were in the spotlight this week when China’s zero-Covid policy wreaked havoc at supplier Foxconn’s Zhengzhou factory. They were also concerned that consumer demand could decline as persistent inflation bites into discretionary spending.

Maestri acknowledged that the macro environment “is definitely not as good as it was a year ago.”

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