Apple sees big supply problems after a strong start to the year

AUCKLAND, California – Apple Inc. predicted bigger problems Thursday as coronavirus disease 2019 (COVID-19) lockdown slows production and demand in China, the war in Ukraine slows sales and growth services, which iPhone makers see as an engine for expansion.

Shares fell 2.2% in late trading after executives revealed their glam outlook in a conference call. The news surpassed Apple’s second-quarter financial profit and sales, which ended in March.

Chief Financial Officer Luka Maestri warned in an interview that the war in Ukraine, which led Apple to cut sales in Russia, would further deepen sales in the third quarter of the fiscal year.

He told analysts in the call that supply-chain problems would hurt sales from 4 4 billion to 8 8 billion in the quarter, which is “large enough” to hurt the second quarter.

He added that the supply problem in a corridor in Shanghai, China was the focus and reflected the Covid barrier and chip deficit. The epidemic is also affecting China’s demand, he said.

Tim Cook, chief executive officer, said that almost all Chinese factories for final assembly of Apple products had reopened after the recent Covid shutdown, but the company did not predict when the chip shortage, affecting most older products, would end.

Mr Cook said he hoped Covid’s problems would be “transient” and “get better over time.”

At least one analyst says there is a lack of clarity of perspective.

“We were all looking for better directions about what was really going on there (China) … and it didn’t come out,” said Louis Navalier, chief investment officer at Naviliar & Associates.

Kim Kaehi Forrest, chief investment officer at Bokeh Capital Partners, said ongoing demand remained a big question mark despite the management of Apple’s supply chain in the March quarter.

Indeed, other high-profile technology companies have also expressed concern. On Thursday Amazon posted a disappointing outlook as it was watered down by high costs, sent its shares down 9% after closing and Intel Corporation forecast a dark quarter based on supply chain issues and its stock fell 4%.

Both companies, along with Apple, are part of the larger Nasdaq index, which has fallen nearly 19% this year as rising inflation drives investors elsewhere.

March quarter power

Apple’s overall financial second-quarter revenue was $ 97.3 billion, up 8.6% from last year and analysts’ average estimate of $ 93.89 billion, according to refinitive data, according to refinitive data.

Global phone sales revenue was $ 50.6 billion, up 5.5% from a year earlier, and service sales rose 17% to $ 19.8 billion, both before analysts’ average forecasts.

However, Mr Maestri said service growth would slow from the March quarter, although it would remain in double digits. He cited a number of factors, including a more unfavorable currency exchange rate.

Total profits were $ 25 billion, or $ 1.52 per share and easily above analysts’ expectations of $ 23.2 billion and $ 1.43.

Apple also raised its dividend by 5% to 23 0.23 per share and the board approved a buyback for 90 90 billion worth of shares.

As the war in Ukraine and other factors drive the cost of oil, food and other key ingredients, investors are concerned about reducing consumer spending on technology gadgets and services.

Mr Cook closed the question with an analyst on inflation and consumers.

“It simply came to our notice then. But at the moment, our main focus is, to put it bluntly, on supply, “he said.

Asked about rising inflation, Mr Mayestri said demand, especially for the iPhone, exceeded the company’s expectations at the start of the quarter. However, he noted that inflation is affecting spending.

The epidemic has benefited other businesses, including the transfer of hybrid jobs.

Apple said sales of the iPad fell 2% to 7.65 billion due to supply-chain constraints, while revenue from Mac computers, which also experienced supply-chain problems, rose 14.7% to $ 10.4 billion.

Sales of wearables, home speakers and accessories rose 12% to $ 8.8 billion, and Wall Street was the only unit to miss the target. Mr Mayestri said watches and airpods sold well, and demand for other accessories was blamed for missing out on seasonal variability.

Apple said it now has 825 million subscribers across at least seven subscription offers, up from 40 million in the previous quarter of 785 million. Its growth as a competitor to Netflix Inc. reports a loss of customers. – Paresh Dave and Nivedita Balu / Reuters