Apple Profits Surge, As Firm Warns Of Trouble Ahead

Apple has issued a gloomy outlook, warning that sales could be dented by as much as $8 billion in the current quarter due to supply chain problems.

That said, Apple offset this warning after it posted another stunning set of results for the quarter just passed, with growth in both profits and sales, despite supply chain and production problems for the iPhone giant.

It should be remembered that Apple in March halted sales of its products and services in Russia, after that country’s illegal invasion of Ukraine.

Financial results

This has resulted in some legal trouble.

Reuters reported on Friday that a Russian law firm said it had filed a lawsuit against Apple, seeking 90 million roubles ($1.28 million) in damages for consumers affected by Apple withdrawing its payment service from Russia.

Law firm Chernyshov, Lukoyanov & Partners reportedly said Apple had violated Russian consumers’ rights after the company restricted the use of its built-in Apple Pay service on 1 March in response to Moscow invading Ukraine.

That same law firm is also pursuing a similar lawsuit against streaming company Netflix, which in March also suspended its service in Russia.

But besides these distractions, Apple financially speaking remains in very rude health indeed.

For Apple’s second quarter ending 26 March, it posted a staggering quarterly net profit of $25 billion, up from a profit of $23.6bn in the same year-ago quarter.

There was equally good news on the sales side, as revenues for the quarter came in at $97.3bn, from $89.6bn a year ago.

“This quarter’s record results are a testament to Apple’s relentless focus on innovation and our ability to create the best products and services in the world,” said Tim Cook, Apple’s CEO.

“We are delighted to see the strong customer response to our new products, as well as the progress we’re making to become carbon neutral across our supply chain and our products by 2030,” said Cook.

“We are committed, as ever, to being a force for good in the world – both in what we create and what we leave behind,” Cook concluded.

Trouble ahead

But he left it up to CFO Luca Maestri to warn that the war in Ukraine, would cut sales more deeply in the fiscal third quarter.

Reuters reported Maestri telling analysts on the call that supply-chain issues would hurt sales in the quarter by $4 billion to $8 billion, “substantially larger” than the hit in the second quarter.

Supply problems were focused on a corridor in Shanghai, China and reflected Covid disruptions and chip shortages, he added.

The resurging pandemic in China was also affecting demand in that country, he reportedly said.

Cook reportedly added that almost all of the Chinese factories doing final assembly of Apple products had restarted after recent Covid shutdowns.

But Apple is not forecasting when the chips shortage, mostly affecting older products, would end.

Cook said he hoped Covid issues would be “transitory” and “get better over time.”

Successful iPhone 13

One analyst noted the results have been helped by the positive uptake of the iPhone 13, after phone production was reducing late last year.

“Apple reported record setting results for its fiscal second quarter – a feat made more impressive given this broke records set in last year’s bumper quarter where the delayed iPhone 12 launch spread its typically strong holiday quarter seasonality into the beginning of the year,” noted James Manning-Smith, senior analyst, forecasting, at CCS Insight.

“While the third generation iPhone SE launched during the quarter, the success of the iPhone 13 propelled results, with pent-up demand for iPhones spilling through into the beginning of the year, following component shortages limiting Apple’s ability to meet demand in the second half of last year,” said Manning-Smith.

“Apple has continued to see supply issues hampering its business leading to de-prioritising of component supply for its iPad range,” said Manning-Smith. “A further decline in iPad revenues was registered, but a decline in the category will have aided Apple in continuing growth momentum for its more higher revenue iPhone range.”

“Apple has been championed as a business that has achieved growth despite difficult supply conditions following the pandemic,” said Manning-Smith.

“Its latest results came with a warning that supply challenges will continue during the next quarter, leading another quarter of lost sales potential,” Manning-Smith concluded. “Although Apple has navigated supply difficulties well in the last two years, lockdowns in China and disruption from the war in Ukraine continue to threaten its continued growth.”