Apple says Covid-19 lockdowns in China loom over sales 2022-04-28 18:11:00

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He warned Thursday that the resurgence of Covid-19 in China threatens to hamper sales by up to $8 billion in the current quarter — a setback after seeing supply chain improvements during the first three months of the year.

The guidance from the iPhone maker came Thursday shortly after the company announced one of the best chapters in its 46-year history. The reflected news sent the company’s stock into a turbulent run in aftermarket trading — first up 2%, then down 5%.

Many investors had been expecting a blast during the January-March quarter and were more in line with any indications from CEO Tim Cook about his view of the future amid rising inflation and epidemic lockdowns in China and war in ukraine.

“I want to acknowledge the challenges we see from supply chain disruptions driven by both Covid and silicon shortages to the devastation of the war in Ukraine,” Mr. Cook told investors. “We are not immune to these challenges.”

The Cupertino company’s new pain points in California come in areas around Shanghai, where Apple has several suppliers, facing government shutdowns aimed at curbing Covid-19 infections.

“Supply constraints caused by disruptions associated with Covid and industry-wide silicon shortages are affecting our ability to meet customer demand for our products,” Luca Maestri, Apple’s chief financial officer, said during a conference call.

Mr. Maestre said the restrictions would hit revenue by $4 billion to $8 billion in the three months to June. Lockdowns are also expected to dampen demand in China.

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The challenges come after a huge quarter. Apple’s revenue recently rose 9% to $97.3 billion, well above analysts’ expectations of $94 billion. Earnings per share rose to $1.52 from $1.40 a year earlier — beating estimates of $1.42 a share and a record for Apple’s second fiscal quarter.

The results reflected the company’s ability during that period to overcome supply chain challenges that were blighting technology and the auto industry, allowing the company to sell more iPhones than Wall Street expected. “The supply constraints were much lower than what we saw during the December quarter,” Mr. Cook said in an interview on Thursday.

“It’s hard to predict Covid,” Mr. Cook added during the conference call. He noted that “almost all of the affected final assembly plants have now been restarted.”

Apple’s outlook added to the turbulent afternoon as investors worried about the overall economy.

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Shares fell more than 10% after the e-commerce giant’s publication Its first quarterly loss Since 2015 sales growth has slowed.

Apple’s results were consistent with guidance from january, When the company forecast a record high in the March period, despite growing at a slower rate compared to the previous quarter — which included the Christmas holidays — the company posted an all-time high in revenue and profit thanks to its latest iPhone, Mac and iPad tablets.

The quarter of $97 billion ranks as Apple’s third-best in history in terms of total revenue, but one of the slowest growth since the pandemic began more than two years ago. The company has seen double digit year-over-year growth every quarter since the launch of The first iPhone with 5G capabilities In October 2020.

Daniel Morgan is a technology-focused senior portfolio manager at Synovus Trust Co. , which Apple counts among its biggest holdings, called supply chain concerns, Covid-19 and inflation “the biggest street concerns” for the current quarter. Bernstein Research analyst Tony Sakunagi echoed that sentiment in this week’s note, predicting strong quarterly results and asking, “But then what?”

In January, Mr. Cook said he expects effects Supply Chain Challenges In the March period compared to the last three months of 2021, when Apple estimated it lost more than $6 billion in sales due to inventory restrictions.

But his optimism came before the outbreak of the epidemic again in Asia and the outbreak of war in Europe. Apple suppliers in China It was hit this month Through strict government shutdowns aimed at containing the spread of Covid-19. Loup Funds estimates that 85% of Apple’s products are assembled in China while the region accounts for about 20% of the company’s annual sales.

In January, Mr. Maestri warned that the March quarter would face an unusual comparison to the previous year. iPhone sales were stronger than usual in the similar period to 2021 because pandemic-related delays disrupted the usual fall launch and pushed those sales back. Total sales in the previous year increased by 54%.

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iPhone sales rose 5% to $50.6 billion last quarter compared to the previous year. Analysts expected 1% growth. The company no longer discloses unit sales of the smartphone, which make up about half of Apple’s annual revenue.

Analysts said those sales may have benefited from strong demand in China, where the latest iPhones have resonated with consumers. He attributed some of the expected decline in iPad sales to Apple prioritizing iPhone production during this period. iPad sales fell 2.1% to $7.6 billion. Mac computer sales rose 15% to $10.4 billion, far exceeding analyst expectations of flat results.

In an interview on Thursday, Mr. Cook said iPad results were hampered by “extremely large supply constraints”.

Amid sluggish hardware sales, digital content sales are back in focus. The so-called services sector, which includes iTunes and the App Store, grew 17% to $19.8 billion in the three months to March. Analysts expected 17% growth.

write to Tim Higgins in Tim.Higgins@WSJ.com

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