Apple Sales Are Expected to Show First Decline in Nearly Four Years

Apple’s sales are expected to fall 2% to $121.42 billion, according to FactSet.

For the important holiday quarter, the company struggled to keep up with demand for its latest premium iPhone 14 Pro models as China’s zero-Covid policies caused upheaval at a smartphone factory in Zhengzhou. In November, Apple issued a rare warning about disruptions to output of the iPhone 14 Pro.

Apple has been able to get its supply chain back in order and increase its iPhone 14 production, and China has loosened its Covid-19 restrictions. Analysts now expect iPhone demand to be pushed to the current March quarter, but some have also expressed concern that Apple might face reduced demand for iPhones and other products.

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“With supply-chain challenges largely normalized, we now believe [Apple] is entering a period of slower demand due to macro factors,” wrote

Krish Sankar,

a senior research analyst at investment bank

Cowen,

in a recent note to investors.

Overall consumer spending is also starting to sputter in the U.S., which could have an impact on the extent to which iPhone demand picks up in the March quarter, analysts said.

Global smartphone sales have fallen. Worldwide shipments suffered their largest-ever quarterly decline in the October-to-December period last year, falling 18% to about 300 million units, according to market-research firm International Data Corp. But Apple’s iPhone business declined the least among the top smartphone vendors, with iPhone shipments dropping nearly 15%.

In recent years, as Covid-19 forced closures of schools and sent millions of people home to work, demand for Apple products rose significantly. IPhone sales received a further lift as consumers upgraded their smartphones to gain ultrafast 5G wireless capability. For the fiscal year that ended in September, Apple reported a profit of almost $100 billion, a record for the company and the highest annual total in history for a U.S. corporation.

To date, Apple’s core business has also remained more resilient against broader market downturns compared with other tech giants, although last year the company wasn’t immune. For the September quarter, Apple said its services business grew 5% from the same period last year to $19.2 billion, the slowest growth rate for the segment since the company began breaking it out in its financial reporting in 2015.

Sales in the services business are expected to slow further for the December quarter, with a 4.3% increase to $20.4 billion. Apple services include the App Store and streaming services such as Apple TV+.

So far, Apple has managed to avoid the layoffs rippling through the corporate ranks of its technology peers, including

Microsoft Corp.

,

Meta Platforms Inc.,

Amazon.com Inc.

and

Alphabet Inc.’s

Google. Apple has accomplished this, in part, because it hired at a slower pace than other tech companies during the pandemic. Over the past three years, Apple’s workforce grew about 20%, while competitors such as Meta and Amazon almost doubled their employee count in that same period.

Apple has slowed hiring in parts of the company and the company could reduce its workforce through attrition and by not filling roles of departed employees, analysts said.

The company is preparing to announce this spring a new product with a headset that combines augmented and virtual reality. With a higher price point, the device isn’t expected to be a big business at the outset and will have low initial production targets, according to analysts.

After Apple’s production difficulties late last year, Wall Street will also be looking at how the company diversifies its supply chain and addresses China. The supply-chain issues have spurred Apple to more aggressively look outside China to manufacture its hardware, The Wall Street Journal recently reported.

Write to Aaron Tilley at [email protected]