Apple Shrugs Off Economic Gloom, But Profit Slips

Apple continues to demonstrate how it is more protected against weak economic conditions than other tech players, after delivering another strong quarterly performance.

The iPhone maker however witnessed a 1 percent quarterly revenue decline in mainland China, which CEO Tim Cook blamed on strict lockdowns in Chinese cities, which forced millions to stay home and hammered the Chinese economy, according to Reuters.

“We did see lower demand based on the Covid lockdowns in the cities the Covid lockdowns affected,” Cook reportedly said. “And we did see a rebound in those same cities toward the end of the quarter in the June time frame.”

Quarterly performance

There is investor concern that the decline in China could continue or even get worse, as shoppers curb spending in an weakening economy.

Reuters reported that China’s strict curbs to stamp out Covid have undercut a recovery in the world’s second-largest economy, with consumer confidence hovering near record lows, private investment slowing and youth unemployment at a record 19.3 percent, all of which has prompted calls for more urgent government stimulus.

Apple has responded in China by announcing discounts on iPhones and other hardware for Chinese customers this week, which it occasionally does when sales are slow.

But Apple’s financial results have revealed another strong performance in the past quarter, although profits saw a notable decline during its third quarter.

For the third quarter ending 25 June, Apple posted a net profit of $19.4bn, down from a net profit of $21.7bn in the same year-ago quarter.

Quarterly revenues however rose 2 percent to $82.9bn from $81.4bn a year earlier.

“This quarter’s record results speak to Apple’s constant efforts to innovate, to advance new possibilities, and to enrich the lives of our customers,” said Tim Cook.

“As always, we are leading with our values, and expressing them in everything we build, from new features that are designed to protect user privacy and security, to tools that will enhance accessibility, part of our long-standing commitment to create products for everyone,” he said.

Consumer spending

Marina Koytcheva, vice president forecasting at analyst house CCS Insight, noted Apple’s strong position despite weakening consumer spending.

“As inflation and economic uncertainty hit people around the world, Apple’s results are a testament to its unique position: it capitalizes on the continuously strong, at least for now, demand for premium device by the most affluent part of consumers, while it is shielded from the lower part of the market where demand is shrinking,” said Koytcheva.

“But even the mighty Apple has felt some crunch in some product groups like wearables and accessories, as the growing cost of living across the world bites and consumers postpone some non-essential purchases,” Koytcheva added.

“Apple’s strong results come despite the significant hit the company took from the Covid-related lockdown in the Shanghai area in the spring,” said Koytcheva. “Future disruptions in China cannot be ruled out, unless the zero-Covid policy changes, and this uncertainty remains not just for Apple but for most of its competitors as well.”

“The role of services is paramount for Apple, as the company keeps growing its user base through sales of new products, but also as it benefits from the fast-developing market for second-hand devices,” said Koytcheva. “Any Apple device, new or reused, in consumers’ hands means a stream of recurring revenue for Apple.”

“As the clouds darken over the macroeconomic outlook, Apple remains better positioned than many of its competitors to withstand the headwinds, but even the mighty giant may not be fully insulated from the effect of economic weakness in the future, especially if such weakness continues for a prolonger period of time,” Koytcheva cautioned.