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Apple is having its 'best ever March quarter' but there's a cloud on the horizon

At a time when companies are having a hard time, Apple continues to experience solid growth -- but for how long?
adrian-kingsley-hughes

Yesterday Apple posted its fiscal 2022 second quarter, and it was yet another strong quarter for the company. But the press release and financial statements only go so far in explaining things. Let's dig through the earnings call that followed to get a look at how Apple pulled this off, and maybe get an idea of what the future holds for the company.

Apple CEO Tim Cook came out of the gate strong:

"Apple is proud to report another record quarter, with a March quarter revenue record of $97.3 billion, up 9% from a year ago, and better than we anticipated."

Revenue firmly beat expectations pretty much across the board compared to Wall Street estimates, and there was only one segment -- the iPad -- that was down compared to the year-ago quarter. 

Cook:

"iPhone, Mac and Wearables, Home and Accessories had their best ever March quarter and Services set an all-time record on the strength of subscription growth over the past year."

Let's break this down.

  • Revenue: $97.28 billion, up 8.59% compared to the year-ago quarter 
  • iPhone revenue: $50.57 billion, up 5.5% compared to the year-ago quarter 
  • Services revenue: $19.82 billion, up 17.28% compared to the year-ago quarter 
  • Other Products revenue: $8.81 billion, up 12.37% compared to the year-ago quarter 
  • Mac revenue: $10.44 billion, up 14.73% compared to the year-ago quarter 
  • iPad revenue: $7.65 billion, down 1.92% compared to the year-ago quarter 

Lots of double-digit growth, but with two glaring weaknesses: the iPhone and the iPad.

So, what does Cook have to say about this?

"iPhone revenue grew 5% over the previous year, despite a challenging compare, as we saw strong demand from our customers for the iPhone 13 family."

Reassuring investors that it's not customer demand that's the issue.

"… we're continuing to see such a strong demand for iPad even while navigating the significant supply constraint we predicted at the start of the quarter."

Makes sense.

Overall, it was a very strong quarter, especially given the pressures.

So why did Apple shares dip 4% during extended trading?

Apple CFO Luca Maestri broke the bad news:

"We believe our year-over-year revenue performance during the June quarter will be impacted by a number of factors. Supply constraints caused by COVID-related disruptions and industry-wide silicon shortages are impacting our ability to meet customer demand for our products. We expect these constraints to be in the range of $4 billion to $8 billion which is substantially larger than what we experienced during the March quarter."

Cook went on to add some more color (and perhaps make it less scary) in an answer to an analyst's question:

"Yes, good question. For Q2 so the quarter that we just finished, the restrictions in China had not started yet. And so Q2, we did have supply constraints. They were significantly lower than what we had experienced during the December quarter. They were driven by industry-wide silicon shortages. And specifically, the issue that I talked about on previous calls with the legacy nodes.

"But looking ahead, we see two causes of supply constraints. One is the COVID-related disruptions; and there's the industry-wide silicon shortages that will continue. We've estimated the constraints to be in the range of $4 billion to $8 billion. And if you – these constraints are primarily centered around the Shanghai corridor. And the – on a positive front, almost all of the affected final assembly factories have now restarted. And so, the range, the $4 billion to $8 billion range reflects various ramps of getting back up and running. We're also encouraged that the COVID case count that's been reported in Shanghai has decreased over the last few days. And so, there's, there's some reason for optimism there."

How much of a hit is $4 to $8 billion? If we look back to Q3 2021, Apple pulled in $81.4 billion in revenue.

This means Apple has prepared the way for a 5% to 10% hit.

Quite a hit.

But it might also be a case that Apple has paved the way for a worst-case scenario here, and the final result won't be so dire.

We'll have to wait and see.

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