Difficulty finding new business growth points is a problem faced by many technology companies today, and Apple is no exception.
On the evening of October 27, Washington time, Apple released its financial report for the third quarter of 2022.
The report shows that during the period, Apple’s total revenue reached US$90.15 billion, an increase of 8% year-on-year; net profit was US$20.72 billion, an increase of 1% year-on-year. Among them, the operating income of the iPhone reached 42.626 billion US dollars, a year-on-year increase of 9.67%.
In terms of revenue alone, Apple’s third-quarter financial report was significantly better than Wall Street’s expectations. Previously, Wall Street analysts generally predicted that Apple’s fourth-quarter revenue would increase by 6.4% year-on-year to $88.69 billion.
But investors didn’t seem to buy it. After the earnings report was released, Apple’s stock price fell by 3.05%. As of the close of the earnings report (October 27th, ET), Apple’s stock price closed at $144.80.
Samik Chatterjee, an analyst at JPMorgan, believes the main reason comes from “lower-than-expected iPhone revenue and a slump in Apple’s services business.”
With the double growth of revenue and profit, but the decline in the share price due to the “less than the expected growth rate of core product sales”, Apple is currently in a relatively embarrassing situation: on the one hand, it needs to rely on the iPhone, the leading product, to survive the economic slowdown and the strengthening of the US dollar. Double stacking difficulty. On the other hand, any changes in the iPhone business will be infinitely amplified by the outside world.
This is because the iPhone is still the main source of Apple’s profit growth. In other words, Apple has obviously not found a new growth point outside the iPhone in the past 15 years.
Although Cook insisted on the earnings call that the quarter was “the best quarter in the company’s history,” judging by the current end-market feedback on the iPhone 14 series, whether the iPhone story can continue is still full of questions. Uncertainty.
iPhone is still the main growth driver
This week, the five major U.S. technology giants (Alphabet, Meta, Apple, Microsoft, Amazon) all released their earnings reports, dragged down by poor performance, Alphabet’s stock price fell 7% after the earnings report, Amazon’s stock price fell 21%, Meta’s stock price fell 23% %.
According to statistics from the Financial Associated Press, the total market value of the above-mentioned five companies has evaporated by nearly 800 billion US dollars after the release of the financial report.
Apple’s third-quarter performance was a bright spot in the bleak earnings report of the U.S. tech giant. Of course, most of this confidence is due to the iPhone. Under the downward cycle of consumer electronics, Apple mobile phones can maintain high shipments.
According to statistics from SA, a third-party data analysis agency, in the third quarter of 2022, global smartphone shipments fell by 9% year-on-year to 297 million units. Apple ranked second with a market share of 16.3%, becoming the only manufacturer to grow against the trend, which is also Apple’s highest market share in the third quarter in the past 12 years.
In the Chinese mainland market, the iPhone’s performance is even more prominent.
According to a report released by IDC, a third-party consulting agency, in the third quarter of 2022, China’s smartphone market shipped about 71.13 million units, down 11.9% year-on-year. Even in such a sluggish market environment, the iPhone still achieved a year-on-year growth rate of 2.5%, becoming the only company among the top five domestic mobile phone manufacturers that can maintain growth.
Canalys analyst Amber Liu mentioned in the article the reason for Apple’s growth, “it is the strong demand for the iPhone 14 Pro series that has boosted Apple’s overall performance.”
There is another reason, for Apple’s promotional strategy. Changes in Apple’s promotion strategy have already occurred in the second quarter of this year, including reducing the official website price of the iPhone 13 before the new phone is released and allowing authorized dealers to adjust prices on their own. Although Cook previously denied on the conference call that it was Apple cleaning up inventory, the boost to Apple’s sales in mainland China is obvious.
In terms of other hardware businesses, sales of the Mac business achieved $11.508 billion in revenue, a year-on-year increase of 25.39%, higher than the $9.25 billion previously expected by analysts.
According to a previous report released by third-party analyst firm Canalys, the global personal computer market experienced a sharp drop in demand in the third quarter of 2022, with total shipments of desktops and laptops falling by 18% to 69.4 million.
In this context, the Mac computer business’s achievements in the third quarter are particularly valuable.
Analyst Christine Mckee pointed out in an article on Apple Insider that the newly designed MacBook Air and the lower-priced Macbook Pro contributed to the growth of the Mac business during the quarter.
However, it should be noted that in the third quarter of last year, the supply chain interruption caused by the epidemic caused the revenue of the Mac business to drop by 10%. The smaller base is also the reason why the Mac can achieve high growth this quarter.
Compared with the “backbone” iPhone and the surprising Mac, the performance of the iPad business this quarter can be called a “collapse”.
The financial report shows that in the third quarter of 2022, the iPad business achieved revenue of US$7.2 billion, down 13.1% year-on-year, making it the only category with negative net sales growth among all Apple hardware products.
Cook explained this on the conference call, “The iPad Pro was launched before the start of the third quarter of last year, so it was a full quarter after the iPad Pro was released. So the iPad quarter a year ago was exceptionally strong, which is The reason for the decrease in iPad revenue in the third quarter.”
But from the data point of view, the iPad’s “loss of power” in the tablet computer market may have already appeared. According to a relevant report released by third-party analysis agency Canalys, in the first quarter of 2022, the iPad accounted for 26% of the global tablet market, compared with 31% in the same period last year.
In addition to the iPad business, the performance of Apple’s services business this quarter was also unsatisfactory. In the third quarter of 2022, revenue from services, including the App Store and Apple TV+, was $19.2 billion, an increase of about 5% from the previous year, but lower than the year-on-year growth in previous quarters.
In this regard, Apple’s chief financial officer Maestri said that the slowdown in the services business was due to the impact of exchange rates and a slowdown in the digital advertising business.
However, Maestri added, “We have more trading accounts and paid accounts, and they are both growing at a double-digit rate. Our subscription business is very good, with 900 million paid subscriptions currently on the platform. users, and that number is growing rapidly, doubling in three years.”
New growth has yet to emerge
Although Maestri is optimistic about Apple’s services in the long-term, for now, it is still difficult for the service business to be independent in the short term, because the main source of Apple’s service business is still digital advertising, and the decline of digital advertising is placed in front of all Internet companies. a problem.
According to Google’s previously released third-quarter report, Youtube’s advertising revenue fell for the first time year-on-year during the period. Microsoft’s digital advertising revenue, although still able to maintain growth, but the 16% year-on-year growth in the third quarter was much lower than the 40% rise in the same period a year ago.
Since the beginning of this year, Silicon Valley’s technology giants have entered a severe winter. According to a research report by Morgan Stanley, as of October 20, the U.S. stock market has not seen an IPO of technology companies with a scale of more than $50 million for 238 consecutive days. This number has exceeded the 2008 financial crisis and this century. A record set after the dot-com bubble burst.
Although Apple can still maintain a relatively stable performance with the iPhone, when the smartphone industry is declining, over-reliance on the growth brought by the iPhone will also be one of the reasons for Apple’s weak future business growth.
According to a previous forecast by third-party consultancy IDC, smartphone shipments will drop by 6.5% in 2022 to 1.27 billion units. If nothing else, the downturn in the smartphone market will continue in the fourth quarter.
What’s more, the iPhone 14 has been “mixed” since its release. SellCell, a third-party research organization, analyzed the average recycling value of more than 40 recyclers and found that compared with the same period last year, the iPhone 14 depreciated twice as much as the iPhone 13. Among them, ten days after the standard iPhone 14 was listed, the average second-hand depreciation rate has reached a terrifying 38.4%.
This report was released, but it has been 10 days since the iPhone 14 went on sale.
Although the iPhone 14 and iPhone 14 Plus broke the myth of Apple’s preservation of value, the release of the new phone left not all bad news for Apple. At least the Pro and Pro Max models have received a good market response, which has also boosted the iPhone. sales in the third quarter.
In this regard, Tianfeng International analyst Ming-Chi Kuo believes that Apple will shift the production capacity of the iPhone 14 and iPhone 14 Plus models to the iPhone Pro and iPhone Pro Max, whose shipments may continue to grow by 10%.
The concentrated supply of production capacity to high-premium models sounds great, but it raises another hidden danger: the supply chain for the iPhone 14 Pro models is relatively fragile.
“It’s hard to say until we can really meet the demand, but we’re working hard to make it happen.” Cook is also hard-pressed to guarantee the supply of the iPhone 14 Pro and Pro Max.
Meanwhile, the decline of personal PCs and tablets may be worse than the smartphone market. According to estimates by third-party consulting firm IDC, global personal PC shipments will drop by 12.8% to 305.3 million units in 2022, while tablet PC shipments will drop by 6.8% to 156.8 million units.
In the face of various “replacement products” spawned by online education, the decline of the iPad market share has become a set point. Although Mac’s performance in this quarter is dazzling, it is unlikely that Apple will have any impact on the product line Mac. “Reformed every year”, these two business units may not be much better than the iPhone in the next days.
In the final analysis, the sharp drop in the stock price just because the “iPhone growth is less than expected” is the result of Apple’s failure to release a revolutionary product since the birth of the iPhone 15 years ago. Apple has attracted all the attention of the iPhone in the middle of the stage, but it is not ready. The next actor to come on stage.
