Apple reports full-year sales decline, encounters challenges in China

Apple reported declining sales for the last fiscal year and provided weak guidance for the current quarter. Amid Huawei's comeback and the Chinese government's reported ban on iPhones at work, Apple faces challenges in the Greater China market.

Apple released the earnings report for the fiscal fourth quarter of 2023. Its sales declined by 0.72% to US$89.5 billion, and net income grew by 10.8% to US$22.9 billion. However, as Apple's fiscal year of 2023 ended, the full-year revenue dropped by 2.8% to US$383.29 billion, with the past four quarters all recording sales falls.

Apple sales generated by iPhones set its September quarter record, and the Services revenue reached a new all-time high. Apple's active install base of devices reached a new record across all products and geographic segments. However, except for iPhones and Services, wearables, Macs, and iPads saw sales fall year-on-year. Sales of Macs, which did not see new launches until October, fell by 33.84% to US$7.6 billion.

Apple's weak performance can partly be attributed to a turbulent period in the past quarters. Apple CEO Tim Cook said that in the June quarter of 2022, Apple had a factory disruption that latest several waves, with the pent-up demand resulting from disruptions filled in the following quarter, leading to a high base period effect. He further said that during the September quarter of 2023, Apple faced an uneven macroeconomic environment, including foreign exchange headwinds.

Source: Apple, November 2023

Weak guidance

Regarding the financial guidance for the current quarter, Apple CFO Luca Maestri said Apple had an extra week in 2022, which added about seven percentage points to that quarter's total revenue. Apple expects the revenue for the current December quarter, which has one less week compared to 2022, to be similar to 2022, and the gross margin is anticipated to be 45-46%.

Apple expects iPhone revenue for the current quarter to grow year-on-year on an absolute basis and Mac's performance to accelerate from the September quarter. However, the sales of iPads and Wearables, Home, and Accessories are expected to decelerate significantly from the September quarter due to a different timing of product launches, as Apple launched new iPad products in the December quarter of 2022. Maestri said the Services business to see strong growth as it did in the last quarter.

Cook said at the earnings call that over the long term, China is an important market, and he is optimistic about it. Maestri also said Apple set new records in the Services business in Greater China.

China and India

Still, China, where Cook made a sudden visit a few weeks ago, can be challenging for Apple. An earlier Financial Times report said the Chinese government is banning iPhone use at work, a rumor that China officially refused. Meanwhile, Huawei launched new smartphone products powered by advanced chips amid US sanctions, which forced other smartphone competitors, including Oppo and Vivo, to make adjustments. Qualcomm said on November 2 that it foresees its Qualcomm CDMA Technologies (QCT) to see sequential revenue growth of greater than 35% from Chinese OEMs, suggesting customers are opting for non-iPhones amid Huawei's comeback and the reported rumor of iPhone ban.

Nonetheless, China, which Cook visited unexpectedly a few weeks ago, poses challenges for Apple. An earlier Financial Times report claimed that the Chinese government was prohibiting the use of iPhones at work, a rumor that China denied.

In the meantime, Huawei has launched new smartphone products equipped with advanced chips despite US sanctions. On November 2, Qualcomm also announced that it expects its Qualcomm CDMA Technologies (QCT) to experience sequential revenue growth of over 35% from Chinese OEMs, indicating that customers may be choosing non-iPhone options due to Huawei's resurgence and the rumored iPhone ban.

Brian Mulberry, a client portfolio manager at Zacks Investment Management, told WSJ that Huawei will be a strong headwind for Apple. Bloomberg Intelligence released a note saying that Apple's sales miss in China is discouraging and could have been caused by soft consumer spending. On the other hand, Bloomberg quoted Vital Knowledge's note stating that Apple managed to compensate for the challenges in China with strong performances in other regions, which speaks to their skill in steering the company.

In the case of India, Cook said Apple had an all-time revenue record in the market and grew by double digits, adding that Apple has a low share in the large market, so there is a lot of headroom for growth.

Source: Apple, November 2023

Source: Apple, November 2023

Source: Apple, November 2023