Apple revenue forecast lags Wall Street targets as iPhone maker struggles with supply chain

[SAN FRANCISCO] Apple forecast sales for the current quarter ending in September would grow more slowly than Wall Street targeted as the iPhone maker struggled to get the parts it needed to deliver products, and shares fell 6 per cent in after-hours trade. 

Apple chief financial officer Kevan Parekh told analysts and investors on a call that the iPhone maker expects revenue growth of 9 per cent to 11 per cent in the quarter compared to the year before.

That was less than the 12 per cent rise predicted by Wall Street, according to LSEG data. He forecast iPhone revenue would grow at a mid-teens rate, compared with Wall Street’s target of 17.6 per cent, according to LSEG, and that gross profit margins would be between 47 per cent and 48 per cent.

“We’re seeing some very significant (supply) constraints currently with limited flexibility in the supply chain to remedy it,” chief executive Tim Cook said during the conference call, adding that Apple was “evaluating all options” for alternative suppliers of components.

In an interview with Reuters, Cook said that the main supply constraint that Apple had during the just-ended fiscal third quarter was an industry shortage of advanced chipmaking technology used to produce the Apple silicon chips at the heart of its devices.

Cook said that was particularly true for the company’s Mac lineup, whose sales grew 29 per cent on the strength of the entry-level MacBook Neo and the high-end MacBook Pro despite price increases for those models.

“If you look at the root causes behind those, it’s that we’re having an incredibly strong product cycle beyond our expectations, and the (advanced chipmaking) supply chain just fundamentally has less flexibility in it to meet the high levels of demand,” Cook told Reuters.

Apple is also grappling with a supply chain strained by hundreds of billions of dollars of spending to build out AI data centres, leading to a thinly concealed conflict with longtime memory supplier Micron.

Cook has previously noted shortages of both memory chips and the main processor for iPhones supplied by Taiwan Semiconductor Manufacturing Co.

Apple earlier on Thursday reported sales and profits in the June quarter that beat analysts’ expectations as customers snapped up iPhones and MacBooks while prices increased across the consumer electronics sector.

But rising services revenue failed to meet Wall Street targets. Expectations were high for Apple, which recently regained the title of world’s most valuable company. Its shares have risen more than 22 per cent this year, retaking the top spot from AI chip leader Nvidia. 

Apple said sales for its fiscal third quarter ended Jun 27 were up 16.4 per cent to US$109.42 billion, compared with analyst estimates of a 15.5 per cent rise to US$108.65 billion, according to LSEG data, and Apple‘s own forecast of 14 per cent to 17 per cent sales growth.

Apple‘s third-quarter profits were US$2.02 per share, with 11 cents attributable to tariff refunds from the US government.

Excluding the tariff refunds, Apple‘s profits were still above Wall Street estimates of US$1.89 per share.

With help from Alphabet’s Google, Apple earlier this year unveiled a revamped version of its Siri virtual assistant with a raft of new AI-driven features, and consumers and software developers alike have been gravitating toward its Mac products to handle AI tasks on device rather than paying monthly fees.

Driving Apple‘s results was a 21.7 per cent increase in iPhone sales to US$54.25 billion, above analysts’ estimates of US$53.86 billion, according to LSEG data. Those iPhone sales were Apple‘s best-ever for a third quarter, when phone sales typically begin to slow as customers anticipate new models during the fall.

But this year, Apple customers are racing to buy iPhones after a global crunch in memory chip supplies prompted Apple to raise prices of Macs and iPads. Apple has so far spared its signature product, with Wall Street analysts increasingly expecting that Apple will hike iPhone prices around its annual fall launch event in September.

Bob O’Donnell, chief analyst at TECHnalysis Research, said that investors may have concerns that the third quarter reflected a buying flurry that may not carry through to the current fourth quarter or beyond.

“I do think it’s possible people are going to continue to buy the existing phones, because of the price increases,“ O’Donnell said. “The big question is, what’s going to happen on Macs in this quarter, when the new prices are fully there?”

Apple‘s second-biggest area for revenue, its services business, including its App Store, iCloud and content businesses, rose 12.1 per cent to US$30.74 billion, missing estimates of US$31.22 billion, according to LSEG data.

D.A. Davidson analyst Gil Luria said that services growth was slowing. “Investors are concerned that if services are decelerating while iPhone is growing more than 20 per cent, it may slow down even more as iPhone sales come back down to earth,” he said. 

Apple said its gross margins, which it had warned would come under pressure due to memory costs, were 50.1 per cent. 

Apple said tariff refunds contributed two points of that margin. Excluding the refunds, gross margins were 48.1 per cent, which was above the midpoint of Apple‘s guidance and above estimates of 47.92 per cent, according to LSEG data.

Apple on Thursday said that sales of Macs were up 28.7 per cent to US$10.35 billion, beating analyst estimates of US$8.74 billion, according to LSEG data. Sales of iPads were down 5.9 per cent to US$6.19 billion, below analyst expectations of US$6.92 billion, according to LSEG data.

Cook attributed the iPad decline to a “tough compare” to the same quarter a year ago when Apple introduced the budget-minded A16 iPad.

Wearable sales were up 6.5 per cent to US$7.88 billion, slightly above expectations of US$7.82 billion, according to LSEG.

Sales rose in all parts of the globe, with Greater China revenue up 22.4 per cent to US$18.82 billion. That China revenue missed the US$19.67 billion average target of six analysts polled by Visible Alpha. REUTERS