Third quarter net sales rose 1.9% to $83.0bn, reflecting a small decline in Product sales to $63.4bn, but a 12.1% increase in Services to $19.6bn.
Operating expenses rose 15.1% to $12.8bn, with research and development spend rising over $1bn. Operating profit fell from $24.1bn to $23.1bn.
The shares rose 2.5% following the announcement.
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Our View
Apple's dip in product sales is disappointing.
Hardware sales are still the engine driver of the business. The more profitable Services division is mushrooming and it's heartening to see this become a bigger part of the picture. But the services web - things like the App store or Apple Music - can't ensnare customers unless iPhones, Macs and Wearables are flying off the shelves.
The question now, is how new iPhone models are going to land later this year. Apple is putting a lot of pressure on its brand to offset the very real pressures of inflation. With the US entering a technical recession and consumer confidence at significant lows, expectations could be overblown.
Asking customers to part with over $1000 for a phone when incomes are under so much pressure, is a tall ask. We should add that we don't see this as a state of permanent decline, but we could see people delaying upgrades until the economic coast is clearer.
There's extra pressure given the tech giant's exposure to China. Not only is this a manufacturing lynch pin, but an increasingly important area for sales. The worsening economic backdrop in the region does give reason for caution on the demand side too.
For all the medium-term challenges, Apple still has its biggest asset: its brand. The sheer scale of Apple's sales is testament to the grip that the shiny embossed piece of fruit has on global consumers. The unbendingly loyal customer base means that there's an element of revenue visibility other businesses simply don't have. And such is Apple's strength, it seems to be avoiding the worst of the inflation-linked tech sell off some of its peers have faced.
Competition in the hardware space is stiff too. And competitors are closing the gap. Some have an even larger installed product base and offer better prices. If Apple's brand ever slips - like we've seen with some heavily branded clothes - the shine would very quickly rust on that tiny famous apple.
Overall, we think Apple's core remains strong, but future spoils still rely on growing higher-margin areas of the Service business, while creating another generation of coveted products. The group's brand power is still formidable, but we think medium term ups and downs are more likely than they have been.
Apple key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Third Quarter Results
The Americas remain Apple's biggest region, where sales rose 4.5% to $37.5bn. In Europe sales rose from $18.9bn to $19.3bn. Sales were broadly flat in Greater China and declined around $1bn in Japan. Rest of Asia Pacific rose 14% to $6.2bn.
iPhone sales were the only product type to increase trading, rising to $40.7bn from $39.6bn.
CEO Tim Cook said while demand for iPhones is holding up, digital advertising demand is slipping.
The group had net debt of $60.5bn as at the end of the quarter and generated free cash flow of $90.6bn year to date.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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