Apple (AAPL) Q1 2023 results

Apple on Thursday missed revenue, earnings and sales expectations for many of its business sectors, dragging the stock down in extended trades. Apple’s overall sales for the holiday quarter were about 5% lower than last year, the first year-over-year sales decline since 2019.

Apple CEO Tim Cook said three factors impacted the results: a strong dollar, production issues in China affecting the iPhone 14 Pro and iPhone 14 Pro Max, and the environment overall macroeconomics.

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“On the third factor, I would say it was just the difficult macro environment, and you hear that from, I think, everyone,” Cook told CNBC’s Steve Kovach.

Apple shares fell more than 4% at one point during extended trading on Thursday before rising again after Apple provided outlook data for the current quarter. The company’s data points suggest that iPhone sales won’t decline as quickly as they did in the December quarter.

Here’s how Apple fared against Refinitiv consensus expectations:

• PES: $1.88 vs. $1.94 estimated, down 10.9% year-over-year
• Returned: $117.15 billion vs. $121.10 billion estimated, down 5.49% year-on-year
• iPhone revenue: $65.78 billion vs. $68.29 billion estimated, down 8.17% year-over-year
• Mac income: $7.74 billion vs. $9.63 billion estimated, down 28.66% year-over-year
• iPad revenue: $9.40 billion vs $7.76 billion estimated, up 29.66% year-over-year
• Turnover Other Products: $13.48 billion vs. $15.23 billion estimated, down 8.3% year-over-year
• Service revenue: $20.77 billion vs $20.67 billion estimated, up 6.4% year-over-year
• Gross margin: 42.96% against 42.95% estimated

Apple did not provide guidance for the current quarter ending in March. He has not provided guidance since 2020, citing first the uncertainty caused by the pandemic. Analysts had expected Apple to hit about $98 billion in sales during the company’s second fiscal quarter.

However, the company offered data points on business performance. Apple Chief Financial Officer Luca Maestri said March quarter revenue would have a similar year-over-year trend to the December quarter, where overall sales fell more than 5%. Services are expected to grow, Maestri said, but Mac and iPad sales are both expected to decline in double digits year-over-year. iPhone sales will decline less in the March quarter compared to the December quarter, Apple added.

The quarter was a resounding failure for Apple, and its first earnings missed consensus expectations in nearly seven years. In fact, it was only Apple’s second revenue loss since August 2017, with sales falling more than 3% below consensus expectations.

It also represents a regression from Apple’s success of the past two years, driven by the need for new computers for working and going to school from home. It’s Apple’s first year-over-year quarterly revenue decline since 2019 and the largest annual decline in quarterly revenue since September 2016.

Cook told CNBC the failure was partly due to a strong dollar. He said that Apple has gained in most markets if you control 800 basis points of exchange rate headwinds.

Cook added that the iPhone 14 Pro and iPhone 14 Max supply was significantly reduced in the quarter, meaning there were fewer of them to sell to customers. Apple’s main iPhone assembly plant in China was hit by covid shutdowns during the quarter. Apple warned investors about this in November.

“We posted an update on this on November 6 and it lasted for most of December,” Cook said. “So we had a big hole there.”

Cook said production has now returned to levels Apple is comfortable with.

Cook said the tough macro environment hurt iPhone sales, Mac sales and sales of wearables like the Apple Watch. iPhone and Mac sales were down year over year. Apple’s other products category, which includes headphones like the AirPods and wearables like the Apple Watch, was down more than 8%.

Cook said Mac sales fell because it was difficult to compare the quarter to the quarter last year, in which the company launched new high-end MacBook Pro laptops. There were no similar launches in the December quarter of this year, Cook pointed out.

The report offered investors some bright spots. First, Apple revealed that it has 2 billion active devices, including iPhones, Macs, Apple Watches and other products. That’s up from the 1.8 billion active devices revealed last year in January.

The number is important for investors because it summarizes the company’s global reach and suggests an advantage if Apple can better monetize those customers through additional services or other products.

“We attribute that to having a lot of switches and a lot of first-time buyers in the case of the Apple Watch,” Cook said. “And so obviously you need to bring in people who aren’t currently active on a device to grow.”

Apple iPad sales were up nearly 30% year over year after releasing an inexpensive low-end model as well as a new high-end model in the quarter. It’s an area of ​​redemption in Apple’s hardware business and it’s a reversal from last December’s quarter, in which Mac revenue surged and iPad fell.

Another ray of hope for investors: Apple announced a 6% growth in its services business, exceeding analysts’ expectations.

Apple management said cloud services, payments including Apple Pay and Apple Card, and music were important parts of the services. Cook added that Apple employees are beta testing a buy-it-now and pay-later feature that will be part of the services.

“It will launch soon,” Cook said.

Cook said Apple was cutting costs and hiring more slowly. Apple hasn’t announced any layoffs unlike many rival tech companies.

“We also recognize that the environment we’re in is challenging. And so we’re cutting costs. We’re cutting hiring, we’re very careful and deliberate about who we hire,” Cook said.