Apple faces uncertainty regarding its growth prospects this holiday season following four consecutive quarters of declining performance

03 Nov, 2023

Apple faces uncertainty regarding its growth prospects this holiday season following four consecutive quarters of declining performance

:In its fiscal fourth-quarter earnings report, Apple sent a cautionary signal to investors, indicating that revenue growth in the upcoming December quarter may not be on the horizon. The December quarter is traditionally the most crucial time of the year for the tech giant's business.

While Apple managed to beat analyst expectations, CEO Tim Cook expressed optimism about the performance of the newly released iPhone 15, suggesting it was outpacing the iPhone 14 from the previous year. However, despite this encouraging news, the company reported a 1% drop in revenue compared to the previous year, amounting to $89.5 billion. This marks the fourth consecutive quarter of revenue shrinkage, a trend unseen at Apple since before the launch of the iconic iPhone in 2007.

CFO Luca Maestri shared commentary in the earnings report, highlighting ongoing challenges in Apple's Mac, iPad, and Wearables segments, despite a relatively optimistic outlook for iPhone sales.

Notably, Apple no longer provides specific revenue guidance, having stopped doing so in 2020. Instead, Maestri mentioned that the revenue for the current quarter would be "similar" to the previous year, implying that the company faces certain challenges during the crucial holiday season.

Following this news, Apple's stock dipped by 3.4% in extended trading.

Maestri further clarified the situation, stating, "The final quarter of the calendar year will last the usual 13 weeks, whereas the December quarter of the previous year spanned 14 weeks." He noted that the extra week in the previous year added approximately 7% to the total revenue. Despite the shorter timeframe this year, Maestri expects the company's December quarter revenue to be comparable to the previous year.

This outlook fell short of Wall Street's expectations, as analysts were anticipating sales of approximately $123 billion for the December quarter, signifying about 5% growth compared to the year-ago period. Maestri assured that Apple expected year-over-year growth in iPhone sales, even when accounting for the disruptions in the supply chain.

Last year, Apple reported $65.78 billion in iPhone sales during the December quarter. However, the performance of Apple's other hardware businesses appears to be less promising.

Maestri pointed out that the Mac business's performance would "significantly accelerate" compared to the previous quarter, but given the nearly 34% year-over-year decline in Mac revenue, this still suggests a drop compared to the previous year. Apple cited tough comparisons to 2022 and supply constraints as reasons for the decline in Mac sales in the September quarter.

In the December quarter of the previous year, Apple reported $7.74 billion in revenue from its Mac business.

Both the iPad and Wearables businesses experienced year-over-year declines in the September quarter, with iPad revenue witnessing a 10% drop. Maestri noted that Apple's introduction of new iPad models in October 2022 had provided a sales boost, but the absence of new models this year is likely contributing to the decline.

Last year's holiday season saw robust sales from new AirPods models, a low-cost Apple Watch, and the premium Apple Watch Ultra. In September, Apple released new AirPods with a different charger and updated the Apple Watch Ultra.

One positive aspect for Apple this holiday season is its services business, which encompasses App Store sales, online cloud storage, AppleCare warranties, advertising, licensing deals with Google, and subscription services like Apple Music. Maestri indicated that the company expected the average revenue per week for the services business to continue growing at a strong double-digit rate, building on the 16% growth achieved during the September quarter.

While Apple faces headwinds in its hardware segments, its services business provides a glimmer of hope as it enters the holiday season.