ii view: Apple shrugs off falling iPhone sales

An iconic brand, exposure to 5G mobile data expansion and continued shareholder returns. Buy, sell, or hold?

First-quarter results to 31 December

• Revenue down 5% to $117.2 billion (£96.1 billion)
• Earnings per share down 11% to $1.88 (£1.54)
• Dividend of $0.23 per share, unchanged from the previous quarter
• Returned over $25 billion (£20.5 billion) to shareholders

Chief Executive Tim Cook commented: 

“As we all continue to navigate a challenging environment, we are proud to have our best line-up of products and services ever, and as always, we remain focused on the long term and are leading with our values in everything we do.”

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ii round-up:

US stock market giant Apple Inc (NASDAQ:AAPL) detailed quarterly sales and earnings which missed Wall Street expectations as both slowing economic growth and supply chain challenges hindered. 

Total sales fell 5% year-over-year to $117.2 billion (£96.1 billion), missing analyst hopes nearer to $121 billion (£99.2 billion). Growth in service sales, such as Apple music, to a record $20.8 billion helped counter a near 8% fall in product sales to $96.4 billion. Earnings of $1.88 per share fell shy of estimates closer to $1.95 per share.

Apple shares fell by 3% in after-hours US trading overnight, but rallied in Friday's session following strong US jobs data. They had come into these results down by close to 13% over the last year, similar to the tech heavy Nasdaq Composite index. Google owner Alphabet Inc Class A (NASDAQ:GOOGL) and maker of rival smartphone software Android are down by almost a quarter during that time.

Apple sales fell across all its devices, with demand for its core iPhone category falling 8% to $65.8 billion. A similar picture occurred geographically with sales for its biggest Americas region down just over 4% to $49.3 billion. 

But the iconic phone maker has so far not announced any job cuts, countering the trend at fellow tech titans such as Amazon.com Inc (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT), and Meta Platforms Inc Class A (NASDAQ:META). A lower level of hiring during recent years is likely responsible. 

The biggest US company by stock market value returned over $25 billion to shareholders during the quarter, down from $29 billion in the prior quarter.

Broker Morgan Stanley repeated its ‘overweight’ stance on Apple following the results, flagging an estimated fair value target price of $175 per share.  

ii view:

Apple came to the stock market in 1980. Headquartered in Cupertino, California, it employs over 150,000 people. iPhone sales account for over half of all revenues, followed by Service sales at around a fifth. Wearables and Mac sales come in next at around a tenth of sales each, with the iPad its smallest generator making up the balance. 

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For investors, below inflation pay rises and higher interest rates offer a challenging backdrop for consumers to spend on its high-end priced products. The West’s relationship with China, Apple’s third biggest market away from the Americas and Europe, remains strained. Costs generally for businesses have risen, too, while environmental concerns and the required use of resources in making its products also warrants consideration.   

More favourably, the tying in of customers to its services generates high customer loyalty, with its device base now standing at two billion units. The move to 5G phones and faster data download speeds gives reason for customers to upgrade, while its strength of brand and geographical diversity are not to be overlooked. 

On balance, and while some caution looks sensible, Apple’s exposure to both devices and services makes it one to continue owning for the long term. 

Positives:

• Diverse geographical markets
• Strong customer loyalty

Negatives:

• Dependency on iPhone sales
• Strained relations between the West and China

The average rating of stock market analysts:

Buy