Apple Inc on Wednesday posted sales and profits far ahead of Wall Street expectations and announced a $90 billion (Dh331 billion) share buyback as customers continued to upgrade to 5G iPhones but warned that supply constraints from a global chip shortage would cost it billions in revenue in the current quarter, hitting Macs and iPads.
Sales to China nearly doubled and results topped analyst targets in every category, led by $6.5 billion more in iPhone sales than predicted and Mac sales about a third higher than estimates. Apple Chief Executive Tim Cook said the company sees an economic recovery coming.
“I think the US will be very strong. Certainly, all indications that I see would be very positive on the US economy,” Cook said.
The results came the midst of a global semiconductor shortage that has hobbled US automotive manufacturers but that so far had left Apple, a major chip buyer known for its supply chain expertise, unscathed.
Cook said in an interview there was no supply constraint impact in the fiscal second quarter, but Chief Financial Officer Luca Maestri told investors on conference call that constraints could cost the company $3 billion to $4 billion in revenue in the fiscal third quarter.
On the conference call, Cook said the shortages “affect primarily the iPad and the Mac. And so we’ll have some challenges in there in meeting the demand that we’ve got.”
Maestri said Apple, which stopped giving formal financial guidance a year ago amid pandemic volatility, expects revenue for the quarter ending in June to grow by “strong double digits” year over year, said Chief Financial Officer Luca Maestri on a conference call.
Maestri said the company expects a steeper-than-usual decline in revenue between its fiscal second and third quarters because of the unusual timing of its iPhone 12.
Apple thrived through the coronavirus pandemic as home-bound consumers stocked up on electronic devices and signed up for paid apps and services for fitness and music, and sales shot up even higher as Apple released 5G iPhone models last fall.
For the fiscal second quarter ended March 27, Apple said sales and profits were $89.6 billion and $1.40 per share, compared with estimates of $77.4 billion and 99 cents per share, according to Refinitiv data.
Apple shares rose 3 per cent in extended trading after the results.
IPhones were the biggest driver of growth, suggesting consumers are upgrading to 5G, said Haris Anwar, senior analyst at Investing.com.
“Stimulus cheques and the successful vaccine rollouts are certainly helping to boost consumer demand for tech gadgets across the board,” he said. “This environment will last for at least another year providing a solid platform for Apple to expedite its growth.”
While Apple’s business is booming, its App Store, one of its fastest-growing businesses, has come under increased antitrust scrutiny because of Apple’s in-app payment rules and app review policies.
In the coming weeks, Apple will defend a high-profile antitrust lawsuit brought by “Fortnite” maker Epic Games, while European Union antitrust regulators are set to chare the company following a complaint by music streaming service Spotify , Reuters reported this week.
Macs and iPads – two product categories that Wall Street rarely counted on to supply growth – both benefited from consumers working from home and remote learning. On top of those trends, Cook said Apple customers were responding strongly to the company’s M1 chip, its first in-house processor for Mac computers.
“Both of those things happening at once really supercharged the Mac sales. The last three quarters on Mac have been the strongest three quarters ever in the history of the Mac,” Cook told Reuters.
Apple raised its dividend 7 per cent to 22 cents per share, a penny ahead of estimates, as well as announcing the $90 billion share repurchase. Google-owner Alphabet Inc announced a $50 billion buyback on Tuesday.
Apple said iPhone sales were $47.9 billion compared with analyst estimates of $41.4 billion, according to data from FactSet.
Sales of Macs and iPads were $9.1 billion and $7.8 billion, respectively, compared with FactSet estimates of $6.8 billion and $5.6 billion.
Apple investors are looking for growth from Apple’s accessories business, which includes products like AirPods headphones and its new AirTag trackers, and its services business, which includes its App Store and new offerings such as paid podcasts. Sales in the segments were $7.8 billion and $16.9 billion, respectively, versus estimates of $7.4 billion and $15.5 billion.
Cook said the company has 660 million paying subscribers on its platform, an increase from the 620 million in the fiscal first quarter. Apple recently added new paid offerings such as its Fitness+ workout service.
Apple’s sales in the greater China region during the fiscal second quarter, which included the busy Lunar New Year shopping season, were up 87.5 per cent to $17.7 billion, compared with a 57 per cent rise in the previous quarter.
Shares of Apple are up some 93 per cent over the past year, compared with a 61 per cent rise for the Nasdaq 100 index of which Apple is a component. The array of products and services eased investors’ valuation concerns that Apple relied too heavily on iPhone sales, turning Apple into a $2 trillion market capitalization company two years after it hit the $1 trillion mark.
The rise has cooled this year despite Apple reporting its first ever quarter with more than $100 billion in sales in January, with Apple shares rising only 3.9 per cent since the start of the year versus a nearly 10 per cent rise for the Nasdaq 100, as investors have questioned whether Apple shares are too expensive relative to other tech stocks.