Reporting on its second fiscal quarter of 2023, Apple announced profits of $24.2 billion ($1.52 per diluted share) on revenues of $94.8 billion. The company’s revenues were down 3% compared to the year-ago quarter, with profits per share essentially unchanged year over year (see “Apple’s Q2 2022 Results Help Brighten Dark Times,” 28 April 2022).
In their conference call with financial analysts, Apple CEO Tim Cook and CFO Luca Maestri said the results were in line with expectations, laying the blame for the slight year-over-year revenue decline on “headwinds” created by foreign exchange and “macroeconomic conditions,” a vague term that covers productivity, interest rates, inflation, employment, and global events. Maestri pointed out that foreign exchange headwinds had a 5% impact on revenues, suggesting that Apple would have posted a 2% gain without exchange rate issues. He also said the results for the next financial quarter would be similar to those in the quarter just ended.
The bright spots in Apple’s quarter were the iPhone, which set a Q2 record, and Services, which set an all-time revenue record. Together, they accounted for 76% of Apple’s revenues. On the other side of the equation, the Mac and the iPad dropped noticeably from the year-ago quarter, and Wearables remained essentially flat.
Apple saw its iPhone revenues rise slightly, to $51.3 billion from last year’s $50.6 billion, an increase of about 2%. In his opening remarks, Cook called out the cameras in the iPhone 14 lineup as one of the drivers for the increase. Whatever the reason, the small uptick in iPhone revenues helped bolster Apple’s overall quarterly results.
The phrase “tough compare” came up frequently regarding Apple’s Mac sales for the quarter. Those sales dropped over 30% from the same quarter last year, achieving just $7.2 billion in revenue compared to $10.4 billion. Last year saw the rollout of the M1 chip throughout the Mac lineup, which dramatically spurred sales, while this year’s releases weren’t as ground-breaking. Even still, Mac sales were well above any year prior to 2021, which was boosted by the introduction of the M1 chip and people working and learning from home during the pandemic (see “Apple’s Jaw-Dropping Q2 2021 by the Numbers,” 28 April 2021).
Like the Mac, iPad sales also suffered a year-over-year sales downturn, bringing in $6.7 billion as opposed to last year’s $7.6 billion. Cook said Apple expected these results for similar reasons as the Mac slowdown: last year saw the introduction of the M1-based iPad Air, compared to no such release this year. Maestri attributed the quarter’s 13% reduction in iPad revenues to the “macroeconomic environment.” Still, compared to the 6 years before the pandemic, Apple didn’t do badly.
Falling in at the end of the parade of revenue declines, Apple’s income from its Wearables, Home, and Accessories business suffered a tiny year-over-year drop of less than 1%, with $8.76 billion in sales compared to the year-ago quarter’s $8.81 billion. Cook gave no reason for these flat results, while Maestri again trotted out the macroeconomic environment as the primary cause. Maestri did point out that two-thirds of Apple Watch purchasers in the quarter were new to the product, implying the likelihood of healthy future sales of that device.
As with the iPhone, Apple’s Services business posted a modest revenue increase over last year’s figures, with $20.9 billion taken in, nearly 6% more than the $19.8 billion from the same quarter last year. Cook praised the vibrancy of Apple TV+ streaming offerings and made a point of mentioning the Academy Award for Best Animated Short Film that it won for “The Boy, the Mole, the Fox and the Horse.” Maestri emphasized Apple’s 975 million paid subscribers, a number that has doubled over the past 3 years, attributing much of this to the continually growing installed base of Apple devices.
However, in response to an analyst question, Maestri said mobile gaming revenues were off during the quarter partly due to the macroeconomic environment and partly due to “very elevated usage during the COVID years.” People have less time to play games when they’re not stuck at home. As for Apple’s latest financial service offerings, such as Apple Pay Later and the Apple Savings Account, Cook drew an analogy with the health features of Apple Watch, stating that Apple’s financial services aimed to help customers achieve better “financial health.” Hmm…
Apple’s revenues for its various geographical regions showed lower figures for the Americas, Greater China, and Japan. On the other hand, sales grew in Europe and Asia Pacific. The Asia Pacific sales were helped by double-digit growth in the emerging Indian market for Apple goods; Cook called out the growth in India’s middle-class as a hopeful harbinger of improved iPhone sales in the subcontinent. As for the Greater China results, he noted that even with a 3% decline in revenues, income from the region actually increased on a “constant currency basis” and that 60% of Mac and iPad customers in the region were new to the platform, a possible indicator of future sales.
Although Cook and Maestri said that the results for Q3 2023 would be comparable to this quarter, Maestri noted that the impact of financial exchange issues on those results would be flat and component prices are currently declining, a statement that concluded Apple’s conference call with analysts on a somewhat optimistic note.
Although constant growth seems to be the goal in our current economic model, it’s hard to see that Apple has done anything particularly wrong over the last quarter in not achieving that. New Mac and iPad releases would likely have improved those numbers, but product development and manufacturing at Apple’s scale isn’t something that can always be tightly scheduled. Apple’s next set of improvements will come, as they always do, and we’ll see if they drive sales the way the transition to Apple silicon in the Mac lineup has.