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Apple reports higher revenue, earnings

Apple Inc.

AAPL 4.52%

warned Thursday that the resurgence of Covid-19 in China threatens to hinder sales by as much as $ 8 billion this quarter – a setback after seeing improvements in the supply chain in the first three months of the year.

The guidance from the iPhone maker came Thursday shortly after the company announced one of the best quarters in its 46-year history. The news’s whip saw sent the company’s stock on a roller coaster ride in aftermarket trading – first rising 2% before falling more than 5%.

Many investors had expected an eruption from the January-to-March quarter and were more attuned to any indication from CEO Tim Cook about how he saw the future amid high inflation, pandemic lockdowns in China and the war in Ukraine.

“I would like 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,” he said. Cook for investors. “We are not immune to these challenges.”

The new pain points for the Cupertino, California-based company, come as areas around Shanghai, where Apple has many suppliers, face government shutdowns aimed at curbing Covid-19 infections.

“Supply constraints caused by Covid-related outages and industry-wide silicon shortages affect our ability to meet customer demand for our products,” Apple CFO Luca Maestri said during a public conference call.

Mr. Maestri said the restrictions would hurt revenue by $ 4 billion to $ 8 billion in the three months to June. The shutdowns are also expected to dampen demand in China.

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The challenges come after a blockbuster quarter. Apple’s revenue for the period January-March rose 9% to $ 97.3 billion, far exceeding analysts’ expectations of $ 94 billion. Earnings per share rose to $ 1.52 from $ 1.40 a year earlier – beating estimates at $ 1.42 per share. share and set a record for Apple’s second-quarter financials.

The results reflected the company’s ability during that period to navigate the supply chain’s challenges that have hit the technology and automotive industries, enabling the company to sell more iPhones than Wall Street had expected. “Supply constraints were significantly lower than what we had experienced in the December quarter,” said Mr. Cook in an interview Thursday.

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

Apple’s prospects added to a turbulent afternoon as investors worried about the overall economy. Amazon.com Inc.

shares fell more than 10% after the e-commerce giant posted its first quarterly loss since 2015 of declining sales growth.

Apple’s results were in line with January’s guidance, where the company predicted a record for the March period, although it grew more slowly compared to the previous quarter – which included the Christmas holidays – where the company marked record high revenue and earnings. thanks to the latest iPhones, Macs and iPad tablets.

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

Daniel Morgan, a senior portfolio manager focusing on technology at Synovus Trust Co., which counts Apple among its largest holdings, called supply chain problems, Covid-19 and inflation “the street’s biggest concerns” for the current quarter. Bernstein Research analyst Toni Sacconaghi reiterated this sentiment in a note this week, predicting solid quarterly results and asking, “But what then?”

In January, Mr. Cook said he expected the effects of supply chain challenges to improve 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 constraints.

But his optimism came before the pandemic flared up again in Asia and war broke out in Europe. Apple suppliers in China have this month been hit by severe government lockdowns aimed at limiting the spread of Covid-19. Loup Funds estimates that 85% of Apple’s products are concentrated in China, while the region accounts for almost 20% of the company’s annual sales.

In January, Mr Maestri warned that the March quarter would face an unusual comparison the year before. iPhone sales were more robust than usual in the comparable period of 2021 because pandemic-related delays disrupted the typical fall launch and pushed sales back. Total sales a year earlier increased 54%.

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IPhone sales rose 5% to $ 50.6 billion in the most recent quarter compared to a year ago. Analysts had expected a growth of 1 per cent. The company no longer reports device sales for the smartphone, which account for about half of Apple’s annual revenue.

These sales may have benefited from strong demand in China, where the latest iPhones have resonated with consumers, analysts said. They have attributed something of an expected decline in iPad sales to Apple prioritizing iPhone production during the period. IPad sales fell 2.1% to $ 7.6 billion. Sales of Macs rose 15% to $ 10.4 billion, far exceeding analysts’ expectations of a flat result.

In Thursday’s interview, Mr. Cook said the iPad’s performance was hampered by “very significant supply constraints.”

In the midst of declining device sales, digital content sales are returning to focus. The so-called service segment, which includes iTunes and the App Store, grew 17% to $ 19.8 billion in the three months to March. Analysts had expected a growth of 17 percent.

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Write to Tim Higgins at Tim.Higgins@WSJ.com

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