The iPhone maker said sales of its flagship product were down 8 percent as it dealt with a factory shutdown and worries about rising inflation.
When a Covid-19 outbreak in China forced a lockdown of Apple’s largest iPhone factory in November, the world’s most valuable company warned investors that it would lose sales. The question was: How much?
On Thursday, Apple reported that revenue fell 5 percent to $117.15 billion during the three months that ended in December, the company’s first quarterly sales decline since before the pandemic. Profits decreased 13 percent to $30 billion.
Apple’s results are the latest evidence of the challenges buffeting the tech industry. After recording double-digit sales gains during the early pandemic, companies have recently shifted to cost cutting and mass layoffs, with Microsoft, Amazon and Alphabet — Google’s parent company — each eliminating at least 10,000 jobs.
A less severe whiplash has hit Apple. From 2020 to 2022, the company increased its annual revenue by nearly $125 billion. But demand for iPhones, iPads and Macs has slowed, causing investors to sour on the company. Over the course of a year, Apple lost $1 trillion in market value, a stunning reversal for the only U.S. company to ever reach a valuation of $3 trillion.
The company’s shares declined about 4 percent in after-hours trading, reversing most of the gains from earlier in the day when tech shares rallied following Meta’s earnings report on Wednesday. Wall Street had expected $122 billion in sales and $31 billion in profit.
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Though its business has slowed, Apple hasn’t moved to cut jobs. Unlike some of its peers, such as Google and Meta, which aggressively hired during the first years of the pandemic to keep up with demand, Apple remained disciplined, adding 24,000 new workers, just 3,000 more than it added in the three years before 2020.
Still, many investors have reduced their stakes in Apple out of concern its business will be hit by the slowing economy. Consumer spending in the United States, Apple’s largest market, has declined, posing a potential challenge to sales of pricey iPhones.
“It’s impacting the higher end consumer’s willingness to spend and that’s going to impact the most valuable company in the world,” said Dave Wagner, a portfolio manager at Aptus Capital Advisors, which has about $5 billion under management and an investment in Apple.
Apple recorded $65.78 billion in iPhone sales, an 8 percent decline from the previous year. The modest decline testified to the company’s supply chain acumen. After the company shut down its biggest iPhone factory in November, it shifted some production to other factories, according to Counterpoint, a market research firm.
On the sales front, Apple benefited as more iPhone buyers chose its more expensive Pro models, lifting the average selling price 9 percent to $936, according to Counterpoint.
Apple offset its iPhone struggles with increased sales of its iPads and services. The company said its iPad business recorded $9.4 billion in sales, a 30 percent increase. It increased sales of apps and subscription services such as Apple Music to $20.77 billion, about 6 percent from the previous year.
The company’s biggest challenge remains its concentrated supply chain in China. The faltering of U.S.-China relations has accelerated, with Congress creating a special committee this year to evaluate competition with Beijing. Concerns are also mounting in Washington that China could soon take military action against Taiwan.
Amid the rising tensions, Apple has shifted production from China to Vietnam and India. But a vast majority of its revenue continues to come from products made in China. And Chinese consumers count for about a fifth of total sales.
During the December period, sales in China fell 7 percent to $23.9 billion. Apple’s business there should improve in the current period as China’s economy reopens after years of strict Covid-19 restrictions. Analysts predict sales in the current quarter will decline about 4 percent.