Apple expects weaker sales growth due to chip shortage
Apple forecast that sales for the current quarter ending in September would grow at a slower pace than Wall Street’s expectations, as the iPhone maker faced challenges in the necessary components were acquired to facilitate product delivery, resulting in a 5.5% decline in shares during after-hours trading. Apple and the technology industry have been actively working to fulfil the demand for new products, particularly those equipped with advanced processors and memory. Executives characterised the subdued forecast as a matter of supply constraints rather than a lack of demand. “We’re seeing some very significant (supply) constraints currently with limited flexibility in the supply chain to remedy it,” Chief Executive Tim Cook said during the call, adding that Apple was “evaluating all options” for alternative suppliers of memory chips. Chief Financial Officer Kevan Parekh informed analysts during a conference call that Apple anticipates revenue growth of 9% to 11% for the quarter in comparison to the previous year. That was below the 12% increase anticipated by Wall Street, based on LSEG data. He projected that iPhone revenue would increase at a mid-teens rate, in contrast to Wall Street’s target of 17.6%, and that gross profit margins would range from 47% to 48%.
In an interview, Cook stated that the primary supply constraint in the recently concluded fiscal third quarter was an industry-wide shortage of advanced chipmaking technology essential for the production of the Apple silicon chips that power its devices. That was particularly true for the Mac lineup, with sales increasing by 29% driven by the entry-level MacBook Neo and the high-end MacBook Pro, even in the face of price hikes. “If you look at the root causes behind those, it’s that we’re having an incredibly strong product cycle beyond our expectations, and the (advanced chipmaking) supply chain just fundamentally has less flexibility in it to meet the high levels of demand,” Cook told. THIRD QUARTER BEAT Expectations are high for Apple, which recently regained the title of world’s most valuable company, retaking the top spot from AI chip leader Nvidia. Its shares have risen more than 22% this year. Earlier Thursday, it posted results that broadly beat market expectations, but relatively soft sales of services spooked some investors, who also were uncertain whether bumper demand would continue if Apple hiked iPhone prices. Apple said sales for its fiscal third quarter ended June 27 rose 16.4% to $109.42 billion, compared with analyst estimates of a 15.5% rise, according to LSEG data. Customers snapped up iPhones and MacBooks while prices increased across the consumer electronics sector.
Third-quarter profits amounted to $2.02 per share, of which 11 cents can be attributed to tariff refunds from the U.S. government. Excluding the refunds, profits continue to surpass Wall Street estimates of $1.89 per share. Driving results was a 21.7% increase in iPhone sales to $54.25 billion, above estimates of $53.86 billion. Those represented Apple’s highest iPhone sales for a third quarter, a period when phone sales generally start to decline as consumers look forward to upcoming autumn models. This year, consumers hurried to purchase iPhones following a worldwide memory-chip shortage that led Apple to increase the prices of its Macs and iPads. Apple has thus far preserved its flagship product, as analysts on Wall Street are progressively anticipating a price increase for the iPhone during the launch event in September. Bob O’Donnell, said investors may worry the quarter reflected a buying flurry that may not carry through. “I do think it’s possible people are going to continue to buy the existing phones, because of the price increases,” he said. “The big question is, what’s going to happen on Macs in this quarter, when the new prices are fully there?” Gross margins, which Apple had cautioned would face pressure due to memory costs, stood at 50.1%. Tariff refunds accounted for two percentage points; when excluding these, margins stood at 48.1%, aligning closely with the midpoint of guidance and surpassing estimates of 47.92%. Mac sales increased by 28.7% to reach $10.35 billion, surpassing estimates of $8.74 billion. iPad sales declined by 5.9% to $6.19 billion, falling short of the anticipated $6.92 billion.
Cook attributed this shortfall to a “tough compare” against the previous year’s launch of the budget A16 iPad. Greater China revenue increased by 22.4% to $18.82 billion; however, it fell short of the $19.67 billion target set by six analysts. Apple’s second-largest revenue segment, its services division, experienced a growth of 12.1%, reaching $30.74 billion, which fell short of the anticipated $31.22 billion. D.A. Davidson analyst Gil Luria said services growth was slowing. “Investors are concerned that if services are decelerating while iPhone is growing more than 20%, it may slow down even more as iPhone sales come back down to earth,” he said. Parekh said App Store revenue from mobile games was under pressure. The European Union has required Apple to open iPhones to alternative app stores, and a U.S. battle with “Fortnite” maker Epic Games now lets users pay outside Apple’s in-app system. “We did see some headwinds in mobile gaming, and then keep in mind we also made some changes to the App Store business model in certain countries,” Parekh said, adding the Epic Games U.S. link-out ruling continues to weigh. With help from Alphabet’s Google, Apple earlier this year unveiled a revamped Siri with new AI features. Cook said heavy users could pay extra: “We will have some kind of upgrade possibilities on iCloud Plus, where people can buy up the stack,” he said.
