Apple telegraphed that things are getting better after a tough quarter — here’s how to interpret its remarks

Published

2 years ago

February 3, 2023

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Apple reported a tough December quarter on Thursday, including the company’s biggest quarterly revenue decline since 2016, along with sales drops in its iPhone, Mac and wearables businesses.

At first, investors didn’t like the results, with Apple shares dropping as much as 4% in extended trading.

But the stock had a brief rally after Chief Financial Officer Luca Maestri started to give data points on a call with analysts, suggesting Apple’s performance will get better during the current quarter even if overall sales will still be down from last year.

The tech giant hasn’t provided guidance since the start of the pandemic. But its data points — or “directional insights,” as management calls it — allow analysts covering the stock to get a sense of how the company is doing and update their models.

Here’s how Apple’s forward-looking statements on Thursday break down.

“For iPhone, we expect our March quarter year-over-year revenue performance to accelerate relative to the December quarter year-over-year revenue performance,” Maestri said. “This represents an acceleration in our underlying year-over-year business performance, as the December quarter benefited from an extra week.”

The iPhone is Apple’s biggest product segment by far, amounting for 56% of sales in the most recent quarter. Apple said on Thursday that iPhone sales had declined over 8% year over year. But Maestri’s comment suggests they won’t continue to fall as quickly in the March quarter.

Management said one reason for the drop in November and December was that it couldn’t make enough high-end iPhones because of Covid restrictions at Chinese factories, and that production had recovered.

Still, there’s a risk that customers who couldn’t find a new phone during the holiday season will just give up, rather than buying one in the current quarter. Apple CEO Tim Cook said it was “very hard to estimate” this possibility when analysts asked on the call.

Before Thursday, analysts had expected Apple to guide to about $98 billion in sales in the company’s fiscal second quarter.

On Thursday, Apple said that revenue had declined 5.49%. Last year, in the March quarter, Apple reported $97.28 billion in sales. A similar decline in the March quarter this year would put sales around $92 billion.

So on the surface, this should’ve been a disappointment.

But as Apple explained, a drop of 5.49% would actually be an improvement from the December quarter, because Apple’s results in that quarter were artificially boosted by the fact that there was an extra week. In other words, December 2022’s year-over-year revenue performance was even worse than it looked.

In addition, Covid lockdowns at factories in China were a big factor in the shortfall, but Apple said on Thursday that its production was back to a level it was comfortable with, suggesting that supply won’t be as big a drag on the March quarter as it was in December.

“For Services, we expect revenue to grow year-over-year while continuing to face macroeconomic headwinds in areas such as digital advertising and mobile gaming,” Maestri said.

Services revenue was one of the few pleasant surprises for Apple on Thursday, as its $20.77 billion in sales beat Wall Street consensus expectations. The segment includes App Store, warranties, iCloud, and Apple Music, among other things.

Last year, Apple reported $19.82 billion in services revenue in the March quarter, so the company is suggesting an increase from there, even though executives said it remains a tough environment with decreased gaming and advertising sales.

“For Mac and iPad, we expect revenue for both product categories to decline double digits year-over-year because of challenging compares and macroeconomic headwinds,” Maestri said.

This represents a significant shift for the iPad, which was Apple’s fastest growing hardware business during the December quarter, spiking nearly 30% on a year-over-year basis to $9.4 billion in sales. Now Apple is suggesting the business will go from 30% growth to more than a 10% decline.

In contrast, the Mac business declined nearly 29% during the December quarter, but Cook told analysts it was partially because of when the company released new laptops, and Apple announced new Mac desktops and laptops in January. Mac sales will be down at least 10% in the March quarter, based on these comments, but will likely improve.

“We expect gross margin to be between 43.5% and 44.5%. We expect OpEx to be between $13.7 billion and $14.9 billion,” Maestri said.

Apple’s margins remain significantly higher than they were before the pandemic. For example, in the quarter ending in December 2019, the last full quarter before the Covid pandemic was declared, Apple reported a gross margin of 38.4%.

“We’re doing a lot of work on the cost structure and that is paying off,” Maestri said.

Cook told CNBC’s Steve Kovach on Thursday that Apple had actually come in under its operating expenses goal for the December quarter.

“We’re being prudent and deliberate. If you look at our OpEx guidance, what we said we were going to do this quarter, we came in half of a billion dollars underneath it,” Cook said. “So we are squeezing costs out.”

Technology

Tesla launches refreshed Model Y in China to fend off domestic rivals

Published

7 hours ago

January 10, 2025

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Tesla launched a revamped version of its Model Y in China.

Tesla

Tesla on Friday announced a revamped version of its popular Model Y in China, as the U.S. electric car giant looks to fend off challenges from domestic rivals.

The Model Y will start at 263,500 Chinese yuan ($35,935), with deliveries set to begin in March. That is 5.4% more expensive than the starting price of the previous Model Y.

A spokesperson for Tesla China said that the new Model Y is only open for pre-sale in the Chinese market, rather than being launched globally.

Tesla’s Model Y refresh comes after the auto giant this month reported its first ever annual decline in overall deliveries for 2024.

Elon Musk’s electric vehicle firm is facing heightened competition around the world, from startups and traditional carmakers in Europe. In China, the company continues to face an onslaught of rivals from BYD to newer players like Xpeng and Nio.

Jason Low, principal analyst at Canalys, notes that the Tesla Model Y was the best-selling EV in China in 2024 and that the popularity of the car “remains high.” However, he noted that the competition in the sports utility vehicle (SUV) segment with vehicles priced between 250,000 yuan and 350,000 yuan “has been fierce.”

“Tesla must showcase compelling smart features, particularly a unique but well localized cockpit and services ecosystem,” as well as “effective” semi-autonomous driver assistance features “to ensure its competitiveness in the market,” Low added.

Tesla is offering a number of incentives for customers to buy the Model Y including a five-year 0% interest financing plan.

The new Model Y can accelerate from 0 kilometers per hour to 100 kilometers per hour in 4.3 seconds, Tesla said, exceeding the speed capabilities of the previous vehicle. The Model Y Long Range has a further driving range on a single charge versus its predecessor.

Tesla has not introduced a new model since it began delivering the Cybertruck in late 2023, which starts at nearly $80,000.

Investors have been yearning for a new mass-market model to reinvigorate sales. Tesla has previously hinted that that a new affordable model could be launched in the first half of 2025.

Despite Tesla’s headwinds, the company’s stock is up nearly 70% over the last 12 months, partly due to CEO Musk’s close relationship with U.S. President-elect Donald Trump.

Technology

World’s biggest chipmaker TSMC posts record 2024 revenue as AI boost continues

Published

10 hours ago

January 10, 2025

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World's biggest chipmaker TSMC posts record 2024 revenue as AI boost continues

The logo for Taiwan Semiconductor Manufacturing Company is displayed on a screen on the floor of the New York Stock Exchange on Sept. 26, 2023.

Brendan Mcdermid | Reuters

Taiwan Semiconductor Manufacturing Co. posted December quarter revenue that topped analyst estimates, as the company continues to get a boost from the AI boom.

The world’s largest chip manufacturer reported fourth-quarter revenue of 868.5 billion New Taiwan dollars ($26.3 billion), according to CNBC calculations, up 38.8% year-on-year.

That beat Refinitiv consensus estimates of 850.1 billion New Taiwan dollars.

For 2024, TSMC’s revenue totaled 2.9 trillion New Taiwan Dollars, its highest annual sales since going public in 1994.

TSMC manufacturers semiconductors for some of the world’s biggest companies, including Apple and Nvidia.

TSMC is seen as the most advanced chipmaker in the world, given its ability to manufacture leading-edge semiconductors. The company has been helped along by the strong demand for AI chips, particularly from Nvidia, as well as ever-improving smartphone semiconductors.

“TSMC has benefited significantly from the strong demand for AI,” Brady Wang, associate director at Counterpoint Research told CNBC.

Wang said “capacity utilization” for TSMC’s 3 nanometer and 5 nanometer processes — the most advanced chips — “has consistently exceeded 100%.”

AI graphics processing units (GPUs), such as those designed by Nvidia, and other artificial intelligence chips are driving this demand, Wang said.

Taiwan-listed shares of TSMC have risen 88% over the last 12 months.

TSMC’s latest sales figures may also give hope to investors that the the demand for artificial intelligence chips and services may continue into 2025.

Foxconn, which assembles Apple’s iPhones, reported its highest-ever fourth quarter revenue this week, as it notched strong demand for AI servers.

Meanwhile, Microsoft this month said that it plans to spend $80 billion in its fiscal year to June on the construction of data centers that can handle artificial intelligence workloads.

CNBC’s Jordan Novet contributed to this report.

Technology

Supreme Court set to hear oral arguments on challenge to TikTok ban

Published

17 hours ago

January 10, 2025

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Supreme Court set to hear oral arguments on challenge to TikTok ban

Tik Tok creators gather before a press conference to voice their opposition to the “Protecting Americans from Foreign Adversary Controlled Applications Act,” pending crackdown legislation on TikTok in the House of Representatives, on Capitol Hill in Washington, U.S., March 12, 2024.

Craig Hudson | Reuters

The Supreme Court on Friday will hear oral arguments in the case involving the future of TikTok in the U.S., which could ban the popular app as soon as next week.

The justices will consider whether the Protecting Americans from Foreign Adversary Controlled Applications Act, the law that targets TikTok’s ban and imposes harsh civil penalties for app “entities” that continue to carry the service after Jan.19, violates the U.S. Constitution’s free speech protections.

It’s unclear when the court will hand down a decision, and if China’s ByteDance continues to refuse to divest TikTok to an American company, it faces a complete ban nationwide.

What will change about the user experience?

The roughly 115 million U.S. TikTok monthly active users could face a range of scenarios depending on when the Supreme Court hands down a decision.

If no word comes before the law takes effect on Jan. 19 and the ban goes through, it’s possible that users would still be able to post or engage with the app if they already have it downloaded. However, those users would likely be unable to update or redownload the app after that date, multiple legal experts said.

Thousands of short-form video creators who generate income from TikTok through ad revenue, paid partnerships, merchandise and more will likely need to transition their businesses to other platforms, like YouTube or Instagram.

“Shutting down TikTok, even for a single day, would be a big deal, not just for people who create content on TikTok, but everyone who shares or views content,” said George Wang, a staff attorney at the Knight First Amendment Institute who helped write the institute’s amicus briefs on the case.

“It sets a really dangerous precedent for how we regulate speech online,” Wang said.

Who supports and opposes the ban?

Dozens of high-profile amicus briefs from organizations, members of Congress and President-elect Donald Trump were filed supporting both the government and ByteDance.

The government, led by Attorney General Merrick Garland, alleges that until ByteDance divests TikTok, the app remains a “powerful tool for espionage” and a “potent weapon for covert influence operations.”

Trump’s brief did not voice support for either side, but it did ask the court to oppose banning the platform and allow him to find a political resolution that allows the service to continue while addressing national security concerns.

The short-form video app played a notable role in both Trump and Democratic nominee Kamala Harris’ presidential campaigns in 2024, and it’s one of the most common news sources for younger voters.

In a September Truth Social post, Trump wrote in all caps Americans who want to save TikTok should vote for him. The post was quoted in his amicus brief.

What comes next?

It’s unclear when the Supreme Court will issue its ruling, but the case’s expedited hearing has some predicting that the court could issue a quick ruling.

The case will have “enormous implications” since TikTok’s user base in the U.S. is so large, said Erwin Chemerinsky, dean of Berkeley Law.

“It’s unprecedented for the government to prohibit platforms for speech, especially one so many people use,” Chemerinsky said. “Ultimately, this is a tension between free speech issues on the one hand and claims of national security on the other.”