Apple increases revenue from iPhone sales and services

Apple’s revenue edged up on iPhone sales and its services division despite headwinds from supply chain shortages and factory closures in China.

The iPhone maker said revenue rose 2% from a year ago to $83 billion, slightly ahead of analysts’ forecast of $82.8 billion, according to Refinitiv.

In April, Apple warned of up to $8 billion in setbacks related to supply and production issues for the quarter. But finance chief Luca Maestri told the Financial Times that those costs ultimately came down to less than $4 billion and should improve in the current quarter.

“The supply situation is improving,” he said. “The big question mark as always are potential Covid restrictions but in the current environment if nothing changes we expect supply constraints to be lower than what we have seen in June.”

Earnings per share for the quarter fell 8% to $1.20, beating the forecast of $1.15. Net profit fell 10% to $19.4 billion, above the $19 billion forecast.

Shares of Apple, which have fallen about 13.6% year-to-date as part of a broader tech selloff, rebounded 3% in after-hours trading.

“You have to give credit to [chief executive Tim] Cook for the way he has led this business over the past two years,” said Paolo Pescatore, analyst at PP Foresight. “The company is very well positioned to weather any storm, unlike the others.”

Apple’s most important product is booming, executives said. Sales of its iPhone, which accounted for 49% of overall revenue, rose 3% to $40.7 billion. Cook said the June quarter saw a “record” number of people switch from Android to iPhone.

“On iPhone, we haven’t seen any signs of weaker demand from the macro environment other than forex,” Maestri said. “We think demand continues to be very strong, but we don’t have enough supply to meet that demand.”

Maestri noted that Apple generated nearly $23 billion in operating cash flow and returned more than $28 billion to shareholders through dividends and stock buybacks.

Apple’s “installed base of devices” – which includes iPhones, iPads and other hardware – has reached an all-time high for “all major product categories”, Maestri said, although he declined to provide a specific number. In January, that figure was 1.8 billion.

That helped lift revenue from Apple’s Services – a high-margin division that hosts the App Store and digital media purchases – by 12% to $19.6 billion, slightly below 19 expectations. $7 billion. The number of people paying recurring subscription fees to Apple for its entire range of services is 860 million, Apple reported, up from 160 million over the past 12 months.

Mac revenue fell 10% to $7.4 billion from a year ago. Sales of iPads also fell 2% to $7.2 billion and wearables, such as Apple Watch and AirPods, fell 8% to $8 billion.

Cook lamented “a cocktail of headwinds” holding wearables back, including a stronger dollar, supply constraints and Apple’s decision to pull out of Russia.

Apple also cited the “deceleration” in its advertising business, days after Meta, Snap, Twitter and YouTube all disappointed investors.

Bernstein analysts previously warned that fiscal 2023 revenue estimates could be too high if the economy as a whole continues to falter.

“Apple is consumer-centric and highly transactional, with less than 10% of recurring revenue and profit, meaning it could be vulnerable to a downturn,” they wrote.