Apple Earnings Expected to Show First iPhone Sales Decline in Almost Two Years

Earlier in the week,

Microsoft Corp.

MSFT 2.85%

and Google-parent

Alphabet Inc.

GOOG 0.87%

reported April-through-June results that fell short of Wall Street expectations but showed investors that the companies are well-positioned to weather a recession.

“As we look to September, eyes are on FX [foreign-exchange] impact and any signs of a demand slowdown ahead of the iPhone 14 launch,” longtime Morgan Stanley analyst Katy Huberty wrote in her final note about Apple to investors, after being promoted to a new role.

Analysts, on average, are predicting the Cupertino, Calif., company will report profit falling to $18.9 billion, a 13% decline from a year ago and the worst quarter since the July-through-September quarter in 2020 ahead of the 5G iPhone launch. On a per share basis, profit is seen falling to $1.16 from $1.30, according to the average estimates of analysts surveyed by FactSet. They expect revenue may have risen just 1.7% to $82.8 billion.

In late 2020, Apple introduced iPhones with 5G capabilities that were touted as offering faster internet speeds to improve gaming and downloads, helping spark renewed interest in the gadget and fueling a record fiscal 2021 profit of $94.7 billion. Analysts are predicting iPhone profit for fiscal 2022, which ends in September, will be near $100 billion after a strong first half.

Strong digital-services and Mac computer sales are likely to have offset an expected 2.5% decline in iPhone revenue in the fiscal third quarter, according to analysts. Though affected by supply-chain shortages, the Mac lineup was likely helped by new higher-end offerings.

China, which has seen strict Covid-19 shutdowns, is expected to be a drag on Apple’s results after helping fuel record growth. Apple had warned in April that Covid-related supply disruptions around Shanghai and silicon shortages would hurt the company’s inventory and hinder sales by between $4 billion and $8 billion. Chief Financial Officer

Luca Maestri

also had warned that foreign-exchange rates and paused sales in Russia following the war in Ukraine would also limit growth.

Other U.S. companies with heavy exposure to China have already shown how those shutdowns have hurt their businesses.

Tesla Inc.,

TSLA 2.21%

for example, last week reported its first sequential decline in quarterly profit in more than a year following an extended shutdown at its Shanghai assembly plant, while

General Motors Co.

GM 3.06%

’s China operations helped send profit down 40% in the quarter.

Analysts surveyed by FactSet on average expect Apple’s Greater China region sales to have fallen almost 7% from the same April-through-June period a year earlier. In recent days, Apple has taken the unusual step of discounting iPhones in the China market.

Goldman Sachs estimates that iPhone China shipments improved in the month of May compared with April, when they fell 39%. “Our checks suggest an even stronger sales momentum in June as lockdowns were further reduced, likely driving realization of pent up demand,”

Rod Hall,

a Goldman Sachs analyst, wrote in a note to investors this month.

Apple’s results follow a Bloomberg News report that the company was planning to slow some hiring in the next fiscal year, joining other major tech companies who had already announced plans to pull back spending or lay off workers amid uncertain economic conditions. Apple declined to comment on the report. The company finished the previous fiscal year with 154,000 employees, according to a regulatory filing.

Write to Tim Higgins at [email protected]