Apple’s first-quarter earnings were dented by weak iPhone sales

Apple on Thursday reported sales and earnings that missed Wall Street expectations due to weak iPhone sales after China’s COVID-19 lockdown halted production of the company’s biggest seller.

Apple’s sales fell 5% to $117.2 billion and fell in every part of the world in the quarter. Sales from every product category fell, except for gains in services and iPads. Earnings per share were $1.88, Apple’s first miss of Wall Street’s earnings expectations since 2016.

Analysts had expected sales of $121.1 billion and earnings of $1.94 per share, according to Refinitiv’s IBES data. Apple CEO Tim Cook told Reuters that the production disruptions that plagued Apple’s key quarter are now over.

During the first fiscal quarter ended in December. On the 31st, Apple faced a wave of challenges that left Wall Street expecting lower sales. Among them were supply chain pressures when COVID-related lockdowns at a manufacturing facility in Zhengzhou, China, slowed production of iPhone 14 Pro and Pro Max devices, both high-priced models that have traditionally helped boost Apple’s margins.

In an interview with Reuters, Cook said the production shutdown “lasted most of December” but that “production is now back to where we want it to be.” Cook said the lockdowns in China created a dual challenge where both supply and demand were tight, with top China sales down 7% to $23.9 billion.

Apple store
Apple said iPhone sales were $65.8 billion, down 8 percent from a year earlier and below analysts’ estimates of $68.3 billion.

“When things started to reopen in December (in China), we did see an increase in traffic to our stores compared to November and an increase in demand as December rolled out,” Cook told Reuters.

The strong US dollar also hurt Apple, which derives more than half of its sales from outside America, but the effect was less than expected as the greenback retreated from last year’s highs. Apple had warned investors that such currency issues would hurt sales by 10%, but said on Thursday that the actual effect was 8%.

“I would like to point out that 8% is still a very strong headwind,” Cook told Reuters. “I wouldn’t want to underestimate that. We would have grown on a stable currency basis.”

In addition to supply chain issues for the iPhone, Wall Street analysts expected iPhone sales to fall this year as part of a broader pattern in which the iPhone 14 family launched last year is selling more slowly after two straight years of strong iPhone 12 sales and 13 models. Apple said iPhone sales were $65.8 billion, down 8 percent from a year earlier and below analysts’ estimates of $68.3 billion.

The company’s services division, which includes content businesses like Apple TV+ and software businesses like the App Store, rose 6 percent to $20.8 billion in revenue, compared with analysts’ expectations of $20.7 billion, according to with data from Refinitiv.

Cook told Reuters the company now has a base of 2 billion active devices, up from 1.8 billion a year ago. The company now has 935 million paid subscriptions, up from 900 million in the previous quarter, and that service sales set records in many markets, including China, he said.

Sales of the company’s Mac computers, which had soared during a wave of work-from-home during the pandemic, fell 29% year-over-year to $7.7 billion, against expectations of $9.6 billion, according to with data from Refinitiv. Apple executives had warned last year that Mac sales were likely to decline year-over-year because the previous year’s results included a surge in sales related to the launch of new MacBook Pro computers with processors designed in-house by Apple.

iPad sales, also boosted by the pandemic, rose 30 percent to $9.4 billion, compared with analysts’ expectations of $7.8 billion, according to data from Refinitiv. The wearables and accessories segment, which includes the Apple Watch and AirPods, fell 8 percent to $13.5 billion compared with analyst estimates of $15.2 billion, according to Refinitiv data.

Cook told Reuters that the iPad’s strong performance came from the launch of new models and the absence of supply constraints that had hampered sales of the device a year earlier.

Apple investors are waiting to see if the company will dive into new markets this year. Tech Post Apple is reportedly planning to release a mixed reality headset that could sell for around $3,000 this year and is also working on a more affordable tracking device.

Apple is one of the few major tech companies that hasn’t announced major layoffs, although its ranks have never grown as quickly as those of its peers. At the end of 2022 it said it had 164,000 employees, down less than 20% from 2019. By contrast, other companies such as Meta Platforms, which is laying off about 11,000 employees, had roughly doubled its headcount between 2019 and 2022.