Apple (AAPL) earnings Q1 2023

Apple missed expectations for revenue, profit, and sales for many of its lines of business on Thursday, sending the stock lower in extended trading. Apple’s overall sales for the holiday quarter were about 5% lower than last year’s, the first year-over-year sales decline since 2019.  

Apple CEO Tim Cook said three factors impacted the results: A strong dollar, production issues in China affecting the iPhone 14 Pro and iPhone 14 Pro Max, and the overall macroeconomic environment. 

“On the third factor, I would say was just the challenging macroeconomic environment, and you’re hearing that from, I would think, everybody,” Cook told CNBC’s Steve Kovach. 

Apple shares dropped over 4% in extended trading after rising 3.7% on Thursday.

Here’s how Apple did versus Refinitiv consensus expectations: 

•  EPS: $1.88 vs. $1.94 estimated, down 10.9% year-over-year 
•  Revenue: $117.15 billion vs. $121.10 billion estimated, down 5.49% year-over-year 
•  iPhone revenue: $65.78 billion vs. $68.29 billion estimated, down 8.17% year-over-year 
•  Mac revenue: $7.74 billion vs. $9.63 billion estimated, down 28.66% year-over-year 
•  iPad revenue: $9.40 billion vs. $7.76 billion estimated, up 29.66% year-over-year 
•  Other Products revenue: $13.48 billion vs. $15.23 billion estimated, down 8.3% year-over-year 
•  Services revenue: $20.77 billion vs. $20.67 billion estimated, up 6.4% year-over-year 
•  Gross margin: 42.96% vs. 42.95% estimated 

Apple did not provide guidance for the current quarter ending in March. It hasn’t provided guidance since 2020, at first citing uncertainty caused by the pandemic. Analysts expected Apple to guide to about $98 billion in sales in the company’s fiscal second quarter. 

Apple CFO Luca Maestri said that March quarter revenue would have a similar year-over-year trend to the December quarter, where overall sales declined over 5%. Services are expected to grow, Maestri said, but Mac and iPad sales are both expected to decline double-digits year-over-year. iPhone sales will decline less in the March quarter versus the December quarter, Apple added.

The quarter was a stunning miss by Apple, and its first earnings miss versus consensus expectations in almost seven years. In fact, it was only Apple’s second revenue miss since August 2017, with sales coming in more than 3% below consensus expectations.  

It also represents a regression from Apple’s success over the past two years driven by a need for new computers to work and go to school from home. It was Apple’s first year-over-year quarterly revenue decline since 2019, and the biggest annual quarterly revenue drop since September 2016. 

Cook told CNBC that the miss was partially because of a strong dollar, and that Apple grew in most markets if you controlled for 800 basis points of foreign exchange headwinds.   

Cook also said that the supply of iPhone 14 Pro and iPhone 14 Max were significantly reduced during the quarter, meaning there were fewer to sell to customers. Apple’s primary iPhone assembly plant in China was affected by covid lockdowns during the quarter, which Apple warned investors about in November. 

 “We put out an update on that on November 6th and it lasted through most of December,” Cook said “So we had a big hole there.” 

Cook said that production is now back to levels Apple is comfortable with. 

Cook said the challenging macroeconomic environment hurt iPhones sales, Mac sales, and sales of wearables like the Apple Watch. iPhone and Mac sales were down year-over-year. Apple’s other products category, which includes headphones like AirPods and wearables like Apple Watch, declined over 8%. 

Cook said that Mac sales were down because it was difficult to compare the quarter to last year’s quarter, in which the company released new high-end MacBook Pro laptops. There were no similar launches during this year’s December quarter, Cook pointed out.  

The report offered investors a few bright spots. First, Apple disclosed that it has 2 billion active devices, including iPhones, Macs, Apple Watches, and other products. It’s an increase from the 1.8 billion active devices it revealed last year in January.  

The number is important to investors because it summarizes the company’s global reach and suggests upside if Apple can better monetize those customers through services or other additional products.  

Cook said that the increase in the install base because people switched to iPhone from Android and bought Apple Watches for the first time.  

“We attribute that to having a lot of switchers and a lot of first-time buyers in the case of the Apple Watch,” Cook said. “And so obviously you need to bring in people that are not currently active on a device in order to grow.” 

Apple reported that iPad sales grew nearly 30% year-over-year after it released a low-end, inexpensive model as well as a new high-end model during the quarter. It’s a redeeming area in Apple’s hardware business, and is a reversal of last December quarter, in which Mac revenue surged and iPad fell.  

One other silver lining for investors: Apple also reported 6% growth in its services business, beating analyst expectations.  

Apple management said that cloud services, payments including Apple Pay and Apple Card, and music were strong components of services. Cook added that Apple employees are beta testing a buy-now-pay-later feature that will be part of services.  

“It will be launching soon,” Cook said.  

Cook said that Apple is cutting costs and hiring more slowly. Apple has not announced a layoff unlike many rival tech companies.  

“We’re also recognizing the environment that we’re in is tough. And so we’re cutting costs. We’re cutting hiring, we’re being very prudent and deliberate on people that we hire,” Cook said.