Apple Slips Past Wall Street Estimates For Fiscal Q3, But Inflation And Residual Pandemic Issues Hamper Results

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Apple edged Wall Street estimates for its fiscal third quarter, but its results revealed the negative impact of supply shortages and shutdowns in China, foreign currency fluctuations, inflation and other challenges as the tech giant navigates an uncertain landscape coming out of the worst of Covid.

Revenue inched up 2% from a year ago to $83 billion, while earnings per diluted share were at $1.20, down from $1.30 in the comparable period in 2021. Wall Street analysts had been expecting earnings of $1.16 and revenue of $82.8 billion.

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Shares in Apple ticked up 3% in after-hours trading after the results. Executives offered some early indications but no formal guidance for Apple’s fiscal fourth-quarter during their conference call with analysts and did not signal any cause for major concern. Investors are watching for signs of the company running into more serious turbulence after blazing a trail of record-setting financials and stock market valuation throughout much of 2020 and 2021 despite a host of logistical challenges and retail closures.

Sales of the company’s signature iPhones totaled $40.7 billion, up 3% from a year earlier. The growth rate represented a significant slowdown compared with recent quarters. During the earnings call, CEO Tim Cook said iPhone sales were mostly hurt by foreign exchange gyrations rather than other factors, including irregularities in the supply chain.

The company’s services division also saw moderating gains, with the company reporting 860 million subscribers to either software or services like iCloud or Apple Music, up from 825 million in the previous quarter. Services revenue grew 12% to $19.6 billion, just below analysts’ expectation for $19.7 billion. The increase was almost one-third as great as in the year-ago quarter.

Apple had already been warning investors of a possible hit of $4 billion to $6 billion to the quarterly results, though Cook said the final tally showed the damage wasn’t quite as severe as had initially been feared. Sales of Macs and iPads in regions clustered around China — which has pursued a “zero-Covid” policy with frequent and severe lockdowns — were expected to be the line items to show the most weakness. CFO Luca Maestri said in the company’s earnings release that the quarterly results “continued to demonstrate our ability to manage our business effectively despite the challenging operating environment.”

Asked about the services unit’s ability to withstand a recessionary climate, Cook said the company sees the “digital advertising cloud, if you will, continuing in the current quarter.”

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