Apple sales and profit top estimates as iPhone dodges supply chain hits

Apple Inc. on Thursday reported record sales in the holiday quarter, beating estimates as it benefited from high iPhone demand in China and withstanding supply chain constraints and Omicron variant disruptions.

Chief executive Tim Cook had warned in October that chip shortages were affecting manufacturing of most Apple products and could lead to more than US$6-billion in lost sales.

Chief financial officer Luca Maestri told Reuters in an interview that the effect had indeed been more than US$6-billion but that constraints would decrease in the current quarter, ending in March.

“The level of constraint will depend a lot on other companies, what will be the demand for chips from other companies and other industries. It’s difficult for us to predict, so we try to focus on the short term,” he said.

With few rival phones debuting in the holiday shopping season, the iPhone 13, which started shipping days before the quarter began, led to worldwide phone sales revenue for Apple of US$71.6-billion, a 9-per-cent increase from the 2020 holiday season that handily beat Wall Street targets, according to Refinitiv data.

Apple’s smartphone market share in China reached a record 23 per cent in the holiday quarter, when it was the top-selling vendor there for the first time in six years, research firm Counterpoint Research reported on Wednesday.

The company’s overall fiscal first-quarter revenue was US$123.9-billion, 11 per cent up from last year and higher than analysts’ average estimate of US$118.7-billion. Profit was US$34.6-billion, or US$2.10 per share, compared with analysts’ expectations of US$31-billion and US$1.89 per share.

The pandemic has accelerated adoption of digital tools for communication, learning and entertainment, powering Apple to blowout sales across each of the company’s segments, including computers, accessories and tablets.

Apple’s services business, which covers paid apps such as Apple TV+, Apple Music and Apple Fitness, also has seen a big bump. Services revenue rose 24 per cent to US$19.5-billion, topping analysts’ estimates of US$18.6-billion. The company has 785 million paying subscribers across its offerings, an increase from 620 million a year ago and 745 million last quarter.

Sales for iPads fell 14 per cent to US$7.25-billion compared with analyst estimates of US$8.2billion, seeming to confirm industry predictions that iPads would have low priority for any scarce parts.

Sales for Macs rose 25 per cent to US$10.9-billion compared with estimates of US$9.5-billion, and sales for accessories rose 13 per cent to US$14.7-billion compared with estimates of US$14.6billion.

For investors, the growing services business is helping mitigate production challenges. Apple is trading at 27 times expected earnings over the next 12 months. While down from as much as 35 a year ago, it remains above the company’s five-year average of 20 times expected earnings, according to Refinitiv.

Supply chain issues are dragging on and concern remains about how long it will take Apple to deliver its next big product, such as an augmented reality headset or an electric vehicle.

Apple had reported strong customer response to its latest release, the AirTag, when the accessory began shipping in the fiscal third quarter of 2021.