Apple beats but comes up light on iPhone sales and services

Published

2 years ago

October 27, 2022

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Apple reported fiscal fourth-quarter earnings on Thursday that beat Wall Street expectations on revenue and earnings per share.

However, Apple came up short versus revenue expectations in core product categories including the company’s iPhone business and services.

Apple shares fell about 1% in extended trading.

Here is how Apple did versus Refinitiv consensus estimates:

EPS $1.29 vs. $1.27 est.
Revenue. $90.15 billion vs. $88.90 billion estimated, up 8.1% year-over-year
iPhone revenue: $42.63 billion vs. $43.21 billion estimated, up 9.67% year-over-year
Mac revenue: $11.51 billion vs. $9.36 billion estimated, up 25.39% year-over-year
iPad revenue: $7.17 billion vs. $7.94 billion estimated, down 13.06% year-over-year
Other Products revenue: $9.65 billion vs. $9.17 billion estimated, up 9.85% year-over-year
Services revenue: $19.19 billion vs. $20.10 billion estimated, up 4.98% year-over-year
Gross margin: 42.3% vs. 42.1% estimated

Apple did not provide official guidance for its first fiscal quarter, which ends in December and contains Apple’s biggest sales season of the year. It hasn’t provided guidance since 2020, citing uncertainty.

Apple increased revenue by 8% during the quarter, and Apple CEO Tim Cook told CNBC that it would’ve grown “double-digits” if not for the strong dollar. Total sales in Apple’s fiscal 2022 were up 8% to $394.3 billion.

“The foreign exchange headwinds were over 600 basis points for the quarter,” Cook told CNBC’s Steve Kovach. “So it was significant. We would have grown in double digits without the foreign exchange headwinds.”

Cook told CNBC that Apple had slowed the pace of its hiring. Other tech companies are looking to make cuts ahead of a possible recession and as interest rates rise.

“We are hiring deliberately. And so we we’ve slowed the pace of hiring,” Cook said.

Although Apple’s iPhone business increased sales by over 9% on an annual basis, it came up short versus analyst expectations. Apple’s September quarter had 8 days of iPhone 14 sales, and analysts are closely looking for details about if Apple customers are trading up for more expensive models or if the new devices are poised to sustain higher sales through Apple’s fiscal 2023.

Cook indicated that Apple’s performance in phone sales was strong despite signs that other smartphone companies are struggling with a recent decrease in demand and said the company grew “switchers,” or people who bought an Apple phone after having an Android device. He added that the company’s high-end phones, the iPhone 14 Pro, were supply constrained.

“We clearly countered the industry trends on the on the phone if you look at third party estimates of what the smartphone industry did,” Cook said.

Apple’s services business also missed estimates.

Apple’s services business reported just under 5% growth during the quarter, a significant slowdown for the investor-favorite and profitable business line versus last quarter, which was 12%.

For the fiscal year, Apple services grew just over 14% to $78.13 billion, a slower rate of growth than 2021’s 16% annual increase, and much slower than 2020’s 27% services growth.

The business includes several different lines, including Apple’s online services like Apple Music and Apple TV+, revenue from the App Store, hardware warranties, and search deals with companies like Google.

Apple recently increased prices for Apple Music and Apple TV+, but the increases started during the December quarter.

Cook said the price increases were “disconnected” from Apple’s services performance.

“Well, they’re in the if you look at the price increases as an example, Music, the licensing cost has increased,” Cook said.

He added that Apple TV+ has more shows now, so Apple feels that the product is more valuable.

Investors generally like Apple’s move into services because the products are more profitable than Apple’s hardware and often bring in recurring revenue.

There were a few bright spots in Apple’s report. Mac sales were up over 25% to $11.51 billion, even as data points from parts suppliers, chipmakers, and competing PC firms were pointing during the quarter to a significant slowdown in laptop and desktop sales after two boom years during the pandemic.

Apple’s Other Products category, which includes Apple Watch and AirPods, also saw an annual increase and beat Wall Street expectations. Some analysts believed that Apple’s wearables were most likely to be hurt if recessionary fears slowed discretionary spending. That business increased nearly 10% year-over-year to $9.65 billion.

Apple’s iPad, which had been hampered by supply issues, decreased nearly 10% year-over-year and is Apple’s smallest individual line of business. The company recently released new models in October, which could boost sales just after the September quarter finished. Cook said that it was a difficult comparison because last year, Apple released new iPads in September.

Technology

Alibaba posts profit beat as China looks to prop up tepid consumer spend

Published

26 mins ago

November 15, 2024

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Alibaba posts profit beat as China looks to prop up tepid consumer spend

Alibaba Offices In Beijing

Bloomberg | Bloomberg | Getty Images

Chinese e-commerce behemoth Alibaba on Friday beat profit expectations in its September quarter, but sales fell short as sluggishness in the world’s second-largest economy hit consumer spending.

Alibaba said net income rose 58% year on year to 43.9 billion yuan ($6.07 billion) in the company’s quarter ended Sept. 30, on the back of the performance of its equity investments. This compares with an LSEG forecast of 25.83 billion yuan.

“The year-over-year increases were primarily attributable to the mark-to-market changes from our equity investments, decrease in impairment of our investments and increase in income from operations,” the company said of the annual profit jump in its earnings statement.

Revenue, meanwhile, came in at 236.5 billion yuan, 5% higher year on year but below an analyst forecast of 238.9 billion yuan, according to LSEG data.

The company’s New York-listed shares have gained ground this year to date, up more than 13%. The stock fell more than 2% in morning trading on Friday, after the release of the quarterly earnings.

Sales sentiment

Investors are closely watching the performance of Alibaba’s main business units, Taobao and Tmall Group, which reported a 1% annual uptick in revenue to 98.99 billion yuan in the September quarter.

The results come at a tricky time for Chinese commerce businesses, given a tepid retail environment in the country. Chinese e-commerce group JD.com also missed revenue expectations on Thursday, according to Reuters.

Markets are now watching whether a slew of recent stimulus measures from Beijing, including a five-year 1.4 trillion yuan package announced last week, will help resuscitate the country’s growth and curtail a long-lived real estate market slump.

The impact on the retail space looks promising so far, with sales rising by a better-than-expected 4.8% year on year in October, while China’s recent Singles’ Day shopping holiday — widely seen as a barometer for national consumer sentiment — regained some of its luster.

Alibaba touted “robust growth” in gross merchandise volume — an industry measure of sales over time that does not equate to the company’s revenue — for its Taobao and Tmall Group businesses during the festival, along with a “record number of active buyers.”

“Alibaba’s outlook remains closely aligned with the trajectory of the Chinese economy and evolving regulatory policies,” ING analysts said Thursday, noting that the company’s Friday report will shed light on the Chinese economy’s growth momentum.

The e-commerce giant’s overseas online shopping businesses, such as Lazada and Aliexpress, meanwhile posted a 29% year-on-year hike in sales to 31.67 billion yuan.

Cloud business accelerates

Alibaba’s Cloud Intelligence Group reported year-on-year sales growth of 7% to 29.6 billion yuan in the September quarter, compared with a 6% annual hike in the three-month period ended in June. The slight acceleration comes amid ongoing efforts by the company to leverage its cloud infrastructure and reposition itself as a leader in the booming artificial intelligence space.

“Growth in our Cloud business accelerated from prior quarters, with revenues from public cloud products growing in double digits and AI-related product revenue delivering triple-digit growth. We are more confident in our core businesses than ever and will continue to invest in supporting long-term growth,” Alibaba CEO Eddie Wu said in a statement Friday.

Stymied by Beijing’s sweeping 2022 crackdown on large internet and tech companies, Alibaba last year overhauled the division’s leadership and has been shaping it as a future growth driver, stepping up competition with rivals including Baidu and Huawei domestically, and Microsoft and OpenAI in the U.S.

Alibaba, which rolled out its own ChatGPT-style product Tongyi Qianwen last year, this week unveiled its own AI-powered search tool for small businesses in Europe and the Americas, and clinched a key five-year partnership to supply cloud services to Indonesian tech giant GoTo in September.

Speaking at the Apsara Conference in September, Alibaba’s Wu said the company’s cloud unit is investing “with unprecedented intensity, in the research and development of AI technology and the building of its global infrastructure,” noting that the future of AI is “only beginning.”

Correction: This article has been updated to reflect that Alibaba’s Cloud Intelligence Group reported quarterly revenue of 29.6 billion yuan in the September quarter.

Technology

Elon Musk’s xAI raising up to $6 billion to purchase 100,000 Nvidia chips for Memphis data center

Published

46 mins ago

November 15, 2024

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Elon Musk's xAI raising up to billion to purchase 100,000 Nvidia chips for Memphis data center

Elon Musk listens as US President-elect Donald Trump speaks during a House Republicans Conference meeting at the Hyatt Regency on Capitol Hill on November 13, 2024 in Washington, DC.

Allison Robbert | Getty Images

Elon Musk’s artificial intelligence company xAI is raising up to $6 billion at a $50 billion valuation, according to CNBC’s David Faber.

Sources told Faber that the funding, which should close early next week, is a combination of $5 billion expected from sovereign funds in the Middle East and $1 billion from other investors, some of whom may want to re-up their investments.

The money will be used to acquire 100,000 Nvidia chips, per sources familiar with the situation. Tesla‘s Full Self Driving is expected to rely on the new Memphis supercomputer.

Musk’s AI startup, which he announced in July 2023, seeks to “understand the true nature of the universe,” according to its website. Last November, X.AI released a chatbot called Grok, which the company said was modeled after “The Hitchhiker’s Guide to the Galaxy.” The chatbot debuted with two months of training and had real-time knowledge of the internet, the company claimed at the time.

With Grok, X.AI aims to directly compete with companies including ChatGPT creator OpenAI, which Musk helped start before a conflict with co-founder Sam Altman led him to depart the project in 2018. It will also be vying with Google’s Bard technology and Anthropic’s Claude chatbot.

Now that Donald Trump is President-elect, Elon Musk is beginning to actively work with the new administration on its approach to AI and tech more broadly, as part of Trump’s inner circle in recent weeks.

Trump plans to repeal President Biden’s executive order on AI, according to his campaign platform, stating that it “hinders AI Innovation, and imposes Radical Leftwing ideas on the development of this technology” and that “in its place, Republicans support AI Development rooted in Free Speech and Human Flourishing.”

Technology

Amazon was questioned by House China committee over ‘dangerous and unwise’ TikTok partnership

Published

18 hours ago

November 14, 2024

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Amazon was questioned by House China committee over 'dangerous and unwise' TikTok partnership

Amazon logo on a brick building exterior, San Francisco, California, August 20, 2024.

Smith Collection | Gado | Archive Photos | Getty Images

Amazon representatives met with the House China committee in recent months to discuss lawmaker concerns over the company’s partnership with TikTok, CNBC confirmed.

A spokesperson for the House Select Committee on the Chinese Communist Party confirmed the meeting, which centered on a shopping deal between Amazon and TikTok announced in August. The agreement allows users of TikTok, owned by China’s ByteDance, to link their account with Amazon and make purchases from the site without leaving TikTok.

“The Select Committee conveyed to Amazon that it is dangerous and unwise for Amazon to partner with TikTok given the grave national security threat the app poses,” the spokesperson said. The parties met in September, according to Bloomberg, which first reported the news.

Representatives from Amazon and TikTok did not immediately respond to CNBC’s request for comment.

TikTok’s future viability in the U.S. is uncertain. In April, President Joe Biden signed a law that requires ByteDance to sell TikTok by Jan. 19. If TikTok fails to cut ties with its parent company, app stores and internet hosting services would be prohibited from offering the app.

President-elect Donald Trump could rescue TikTok from a potential U.S. ban. He promised on the campaign trail that he would “save” TikTok, and said in a March interview with CNBC’s “Squawk Box” that “there’s a lot of good and there’s a lot of bad” with the app.

In his first administration, Trump had tried to implement a TikTok ban. He changed his stance around the time he met with billionaire Jeff Yass. The Republican megadonor’s trading firm, Susquehanna International Group, owns a 15% stake in ByteDance, while Yass has a 7% stake in the company, NBC and CNBC reported in March.

— CNBC’s Jonathan Vanian contributed to this report.