Apple is expected to report its first drop in quarterly sales in almost four years after tough COVID-19 restrictions in China hit the economy and related protests upended iPhone production at its largest supplier Foxconn.
Investors will be looking for details on how Chief Executive Tim Cook is trying to boost demand in a sluggish economy that has led to mass layoffs in the tech industry, a move Apple has avoided so far thanks to frugal attitudes during the pandemic.
“As supply chain challenges have largely normalized, we now believe Apple is entering a period of slower demand due to macro factors,” Cowen analyst Krish Sankar said, adding that he expects 2 percent down iPhone Units to be sold in 2023.
According to Refinitiv, the world’s largest public company is expected to report Thursday that iPhone sales fell about 5 percent during the all-important holiday quarter. The last time iPhone sales fell was during the August-October period of 2020, months after the COVID-19 pandemic began.
UBS analysts believe iPhone sales in the United States have held up better than China and Europe as economies have suffered the impact of COVID-19 and the war between Russia and Ukraine.
Some demand for the iPhone is likely to be shifted into the current quarter after first-quarter supply constraints and some demand is lost due to lack of product availability during the holiday season, said BofA analyst Wamsi Mohan.
The services business, a key growth engine for the company and home of Apple’s music and video streaming services, is expected to post the weakest sales growth for the holiday quarter — another fallout from consumers who are restraining their spending.
THE CONTEXT
The disruption at the world’s largest iPhone factory in Zhengzhou, China, prompted a rare warning from Apple in November, limiting inventory of its higher-end iPhone 14 models during what is typically its busiest sales quarter, fueled by product launches and the holiday season.
Greater China, including Hong Kong, is key to Apple’s success, accounting for about a fifth of annual sales. The Cupertino, California-based tech giant had lowered its overall sales guidance in 2019 due to an economic slowdown in the country following the US-China trade war.
However, analysts are expecting a much faster recovery this time around as factories in China have restarted and Apple is diversifying its manufacturing base with plants in India.
“Comments from luxury goods companies suggest China is recovering quickly, meaning Chinese March quarter iPhone sales should be better than expected,” Evercore ISI analysts said in a note.
© Thomson Reuters 2023
