Apple Inc. AAPL 4.52% warned Thursday that the resurgence of Covid-19 in China threatens to hamper sales by as much as $8 billion in the current quarter — a setback after improvements in the first three months of the year were recorded in the supply chain.
The iPhone maker’s guidance came Thursday, shortly after the company reported one of the best quarters in its 46-year history. News headlines sent the company’s shares on a bumpy ride in the aftermarket trade — first rising 2%, then falling more than 5%.
Many investors had been expecting a blowout quarter from January through March and were more tuned in to Chief Executive Tim Cook’s cues on his view of the future amid high inflation, pandemic lockdowns in China and the war in Ukraine.
“I want to acknowledge the challenges we are seeing, from supply chain disruptions caused by both Covid and silicon shortages, to the devastation caused by the war in Ukraine,” Mr Cook told investors. “We are not immune to these challenges.”
The new pain points for the Cupertino, California-based company come as areas around Shanghai, where Apple has many suppliers, face government lockdowns aimed at curbing Covid-19 infections.
“Supply shortages caused by Covid-related disruptions and industry-wide silicon shortages are affecting our ability to meet customer demand for our products,” Luca Maestri, Apple’s chief financial officer, said during a public conference call.
Mr. Maestri said the restrictions will hurt sales by $4 billion to $8 billion in the three months to June. The lockdowns are also likely to dampen demand in China.
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The challenges come after a blockbuster quarter. Apple’s revenue rose 9% recently to $97.3 billion, beating analysts’ expectations of $94 billion. Earnings per share rose to $1.52 from $1.40 a year earlier, beating estimates of $1.42 per share and setting a record for Apple’s fiscal second quarter.
The results reflect the company’s ability during that period to weather the supply chain challenges that have roiled the tech and auto industries, and allowed the company to sell more iPhones than Wall Street anticipated. “Supply shortages were significantly less than in the December quarter,” Mr Cook said in an interview on Thursday.
“Covid is difficult to predict,” Mr Cook added during the conference call. He noted that “nearly all of the affected final assembly factories have now started up again.”
Apple’s outlook contributed to a turbulent afternoon as investors worried about the broader economy. Amazon.com Inc. shares fell more than 10% after the e-commerce giant posted its first quarterly loss since 2015 on slowing sales growth.
Apple’s results were in line with January forecasts, when the company forecast a record March even though it grew at a slower pace than the previous quarter — which included the Christmas holiday — when the company hit all-time highs in sales and profits thanks to the latest iPhones, Mac Computers and iPad tablets.
The $97 billion quarter is Apple’s third-best in history by total revenue, but one of its slowest since the pandemic began more than two years ago. Since the launch of the first iPhone with 5G capabilities in October 2020, the company has posted double-digit year-on-year growth in each quarter.
Daniel Morgan, a senior portfolio manager focused on technology at Synovus Trust Co., which counts Apple among its largest holdings, called supply chain concerns, Covid-19 and inflation “the biggest concerns of the road” in the current quarter. Toni Sacconaghi, an analyst at Bernstein Research, echoed that sentiment in a note this week predicting solid quarterly results and asking, “But what then?”
In January, Mr Cook had said he expected the impact of supply chain challenges to improve in March compared to the last three months of 2021, when Apple estimated it lost more than $6 billion in sales due to inventory restrictions dollars had suffered.
But his optimism came before the pandemic flared up again in Asia and war broke out in Europe. Apple suppliers in China have been hit by tough government lockdown measures this month to stem 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 year-over-year comparison. iPhone sales were more resilient than normal for the 2021 comparable period as pandemic-related delays disrupted the typical fall launch and pushed those sales back. Total sales last year increased by 54%.
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iPhone revenue rose 5% year over year to $50.6 billion last quarter. Analysts had expected growth of 1%. The company no longer announces the quantities of the smartphone, which accounts for about half of Apple’s annual sales.
Those sales may have benefited from strong demand in China, where the latest iPhones have caught on with consumers, analysts said. They attributed part of the expected drop in iPad sales to Apple prioritizing iPhone production during the period. iPad sales declined 2.1% to $7.6 billion. Mac computer sales rose 15% to $10.4 billion, far beating analysts’ expectations of flat results.
In Thursday’s interview, Mr Cook said the iPad results were hampered by “very significant supply shortages”.
With device sales declining, digital content sales are coming back into 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 had expected growth of 17%.
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