AUCKLAND, Calif., April 28 (Reuters) – Apple Inc. (AAPL.O) on Thursday predicted bigger problems as blocking COVID-19 shrinks production and demand in China, the war in Ukraine destroys sales and slows service growth. which the iPhone manufacturer sees as its expansion engine.
Shares fell 2.2% at the end of trading after executives outlined their bleak prospects during a conference call. The news surpassed record profits and sales for Apple’s second fiscal quarter, which ended in March.
Chief Financial Officer Luca Maestri warned in an interview that the war in Ukraine, which prompted Apple to halt sales in Russia, would cut sales deeper in the third fiscal quarter.
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He told analysts during the call that supply chain problems would hurt $ 4 billion to $ 8 billion in quarterly sales, “significantly more” than the second quarter.
Supply problems focused on a corridor in Shanghai, China, and reflected COVID outages and chip shortages, he added. The pandemic is also affecting demand in China, he said.
CEO Tim Cook said almost all Chinese factories finalizing Apple’s products have restarted following recent shutdowns of COVID, but the company does not predict when the chip shortage, which mainly affects older products, will end.
Cook said he hoped COVID’s problems would be “transient” and “improve over time.”
At least one analyst said the outlook was unclear.
“We were all just looking for better guidance on what was really going on there (China) … and it didn’t come up,” said Luis Navelier, chief investment officer at Navellier & Associates.
Kim Cowie Forrest, chief investment officer at Bokeh Capital Partners, said continued demand remains a big issue, although Apple managed the supply chain in the March quarter.
In fact, other high-profile technology companies have also expressed concerns. Amazon (AMZN.O) posted a disappointing outlook on Thursday as it was flooded with higher costs, sending its shares down 9% after closing, and Intel Corp (INTC.O) forecast a grim quarter based on chain issues for supplies and its shares fell 4%.
Both companies, along with Apple, are part of the broader Nasdaq index, which fell nearly 19 percent this year as rising inflation pushes investors elsewhere.
Apple’s total fiscal revenue for the second quarter was $ 97.3 billion, up 8.6 percent from last year and higher than analysts’ estimates of $ 93.89 billion, according to Refinitiv.
Global phone sales were $ 50.6 billion, up 5.5 percent from a year earlier, and service sales were up 17 percent to $ 19.8 billion, both above analysts’ average forecasts.
However, Maestri said that the growth of services will slow down from the quarter of March, while remaining double-digit. He cited several factors, including less favorable exchange rates.
Total earnings were $ 25 billion, or $ 1.52 per share, and easily exceeded analysts’ expectations of $ 23.2 billion and $ 1.43.
Apple also raised its dividend by 5% to $ 0.23 per share, and the board approved a repurchase for an additional $ 90 billion per share.
Investors are preparing for a decline in consumer spending on technology gadgets and services as the war in Ukraine and other factors raise the price of oil, food and other basic products.
Cook dismissed an analyst’s question about inflation and consumers.
“We are watching this closely. But at the moment, our main focus, to be honest, is on supply,” he said.
Asked about rising inflation, Maestri said demand, especially for the iPhone, was higher than the company expected at the beginning of the quarter. But he noted that inflation affects spending.
The pandemic, including the shift to hybrid work, has benefited other businesses.
Apple said iPad sales fell 2 percent to $ 7.65 billion due to supply chain constraints, while revenue from Macs, which also faces supply chain issues, rose 14.7 percent. up to $ 10.4 billion.
Sales of wearables, home speakers and accessories rose 12% to $ 8.8 billion and were the only unit to miss Wall Street targets. Maestri said the Watch and AirPods are selling well and attributed the omission to seasonal variability in demand for other accessories.
Apple said it now has 825 million paying subscribers in its at least seven subscription offerings, up 40 million from 785 million in the last quarter. Its growth comes as competitors such as Netflix Inc (NFLX.O) report losses to subscribers.
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Report by Paresh Dave in Auckland, California and Nivedita Balu in Bengaluru; Edited by Peter Henderson and Bernard Orr
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