China Problems Kick in for Apple

Apple (Nasdaq: AAPL) announced its first quarter results that continued to outpace market expectations. However, Apple’s disappointing iPhone sales and China performance did not please the market.

Apple’s Financials

Apple’s first quarter revenues grew 4% to a record high of $124.3 billion, ahead of the market’s forecast of $124.12 billion. Apple achieved all-time revenue records across the majority of the countries and regions it tracks, including in some emerging markets. EPS of $2.40 was also ahead of the Street’s forecast of $2.35.

By segment, iPhone brought in $69.14 billion in revenues, but the segment was short of the Street’s forecast of $71.03 billion. The miss was attributed to Apple’s sales in Greater China. During the quarter, sales in overall China fell 11% to $18.51 billion. This was Apple’s worst performance in China for smartphone sales since 2016. Apple is facing stiff competition from lower priced smartphones in the country from Vivo and Huawei.

Driven by new product releases, Mac revenues grew 15% to $8.99 billion, outpacing the estimate of $7.96 billion. iPad revenues were also strong at $8.09 billion, ahead of the market’s forecast of $7.32 billion. Other product revenues fell 2% to $11.75 billion, missing the market’s estimated $12.01 billion. Services revenues grew 14% to $26.34 billion ahead of the market’s expected $26.09 billion for the quarter. Apple’s Services segment also surpassed the $100 million trailing twelve month revenue record.

Apple ended the quarter with more than one billion subscriptions for its services. It also announced a new record for its install base with over 2.35 billion active devices.

Apple did not provide an outlook for the quarter. It mentioned that it expects the current quarter revenues to grow in the low to mid-single digits. The market estimates EPS of $1.66 on $95.46 billion in revenues for the current quarter.

Apple’s Product Line-up

Last year, Apple released the first set of Apple Intelligence features in the US. More recently, it rolled out more features and expanded access to the service to more countries. Apple Intelligence is now available in Australia, Canada, New Zealand, South Africa, and the UK. The AI service offers new tools such as AI-supported Writing Tools that can help users find right words. Image Playground and Genmoji allow them to create fun and unique images and users can handle daily tasks and seek information in a more natural and conversational manner with Siri. The photo service has also been upgraded to allow users to create movies of their memories with improved touch up capabilities. Apple recently introduced visual intelligence with camera control that can help users instantly learn about the surroundings of their pictures.

Apple Intelligence is helping users by providing them with information that has more personal context. Apple is also living up to its privacy standards with innovations like private cloud compute that extends the security and privacy of Apple devices into the cloud.

Through its deeper integration with ChatGPT, users can now seamlessly access ChatGPT across iOS, iPadOS, and macOS. In April, Apple will bring Apple Intelligence to more languages, including French, German, Italian, Portuguese, Spanish, Japanese, Korean, and simplified Chinese, as well as localized English to Singapore and India.

Besides going strong on AI-features, Apple is also slated to release a vast array of new products this year. The most awaited one is a new entry-level iPhone SE. Some believe that the new phone will feature a new 6.1-inch OLED display, an upgrade to USB-C, a 48MP rear camera and Face ID. Analysts are expecting the base model of the phone to be priced at $499. Despite its comparatively lower price, the phone will also support gen-AI features, thanks to the improved hardware. Most importantly, the model features Apple’s first in-house 5G modem. The use of the in-house modem could help Apple avoid some dependencies that it has faced in the past on Qualcomm.

Apple’s stock is trading at $244.6 with a market capitalization of $3.68 trillion. It touched a 52-week low of $164.08 in mid-April last year and a 52-week high of $260.10 in December.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.

Photo Credit: Maxx Girr from Pixabay