Apple’s Paying Subscribers Rise to 860 Million as Company Beats Estimates on Strong iPhone, iPad Demand

Apple on Thursday said parts shortages are easing and that demand for iPhones is unceasing despite consumers tightening other spending, helping it top Wall Street expectations and forecast faster sales growth ahead.

The Silicon Valley giant's shares rose 3.5 percent after hours following the release of the results.

Though macroeconomic indicators around the world are turning negative, Chief Financial Officer Luca Maestri told Reuters there had been no slowdown in demand for iPhones, the company's biggest source of revenue.

Phone sales in the fiscal third quarter rose 3 percent to $40.7 billion (roughly Rs. 3,20,000 crore), when Wall Street had braced for a 3 percent decline. By contrast, the overall global smartphone market dropped 9 percent during the just-ended quarter, according to Canalys data.

Apple's loyal and relatively affluent customer base has enabled it to weather consumer spending dips better than other brands in the past, and the company's latest quarterly results suggest a similar pattern emerging.

Canalys Research analyst Runar Bjorhovde said, "Apple in that sense has a certain robustness that will allow it to be impacted less than a lot of its competitors."

Apple offered some caution.

The slumping economy is hurting sales of advertising, accessories and home products, Apple's Maestri said in an interview, calling the units "pockets of weakness."

"Fortunately, we have a very broad portfolio, so we know we're going to be able to navigate that," he added.

The results show Apple's advertising business, which includes selling ads alongside news articles and app store search results, is vulnerable to marketing cuts just the same as rivals Snap and Meta Platforms.

Parts shortages will continue to hamper Mac and iPad sales, Maestri said, though the impact has been easing. They cost Apple under $4 billion (roughly Rs. 31,800 crore) in sales in the quarter ended June 25, less than it had forecast. Maestri said the company expects the hit to diminish further in the current quarter.

But Apple risks joining rivals in amassing an unsellable stockpile of tablets and PCs if more customers than expected hold off purchases due to rising inflation and interest rates.

"In terms of testing the demand, you can't really test the demand unless you have the supply," Apple Chief Executive Tim Cook told analysts on Thursday. "And we were so far from that last quarter that we have an estimate of what we believe demand was. But it is an estimate."

Citing the economic uncertainty, Apple said it was not providing specific revenue guidance. But it said sales compared to a year ago should rise faster in the current quarter than 2 percent growth it posted in the just-ended quarter.

'MORE DELIBERATE'

Overall, Apple said quarterly sales and profit were $83 billion (roughly Rs. 6,60,000 crore) and $1.20 (roughly Rs. 90) per share, above estimates of $82.8 billion (roughly Rs. 65,70,000 crore) and $1.16 (roughly Rs. 90) per share, according to Refinitiv data.

The rising US dollar has hit many companies such as Apple that generate substantial foreign revenue and are getting less cash back when they convert it. Apple said currency fluctuations slashed sales by 3 percent in the June quarter and would crimp them by 6 percent in the current quarter.

Shuttering its business in Russia earlier this year due to the war also has hurt sales.

Apple, like many of its tech industry peers, is slowing hiring and cutting costs given the tough economic climate. Cook said Thursday that Apple was "being more deliberate in (hiring) in recognition of the realities of the environment."

The most recent economic woes include supply chain disruptions that have hit production of some Apple products such as iPads and Macs whose assembly locations were clustered near regions of China that went into COVID lockdowns.

While sales of iPhones and iPads topped expectations, revenue from services, Mac computers and accessories missed Wall Street targets and sales in the crucial China market fell 1 percent as consumers being on lockdown there limited sales.

Apple also is confronting slow overall economic growth in China, where its fiscal third-quarter sales were $14.6 billion (roughly Rs. 1,20,000 crore).

Growth in the company's services business, which has provided a boost to sales and profits in recent years, was 12 percent, below the previous year's 33 percent rate and resulting in $19.6 billion (roughly Rs. 1,50,000 crore) in revenue, below estimates of $19.7 billion (roughly Rs. 1,50,000 crore).

Apple said it now has 860 million paying subscribers to its services, up from the previous quarter's 825 million.

Sales of iPads and Macs were $7.2 billion (roughly Rs. 57,000 crore) and $7.4 billion (roughly Rs. 58,000 crore), compared with estimates of $6.9 billion (roughly Rs. 54,000 crore) and $8.7 billion (roughly Rs. 70,000 crore). Mac sales represented a 10 percent contraction, after record sales since 2020, first from a work-from-home boost and then from Apple's new proprietary processor chips.

Its shares closed Thursday down about 11 percent so far this year, slightly less than the broader S&P 500 index and also less than other consumer hardware makers such as Sonos and Samsung Electronics, the only company that sells more smartphones than Apple.