Apple says Covid-19 blockades in China are rising above sales

Many investors expected the explosion in the quarter from January to March and were more inclined to any instructions from CEO Tim Cook on his view of the future amid high inflation, pandemic blockades in China and the war in Ukraine.

“I want to acknowledge the problems we see from supply disruptions caused by both Covid and silicon shortages to the devastation of the war in Ukraine,” Mr Cook told investors. “We are not immune to these challenges.”

New sore points for the company from Cupertino, California, are when areas around Shanghai, where Apple has many vendors, are facing government blockades aimed at stopping Covid-19 infection.

“Supply constraints caused by Covid failures and silicon shortages across the industry are affecting our ability to meet customer demand for our products,” said Luca Maestra, Apple’s chief financial officer, during a public conference.

Mr Maestra said the restrictions would damage $ 4-8 billion in revenue in the three months to June. Blocks are also expected to weaken demand in China.

Problems come after a blockbuster quarter. Apple’s revenue grew 9% recently to $ 97.3 billion, well above analysts’ expectations of $ 94 billion. Earnings per share rose to $ 1.52 from $ 1.40 a year earlier, exceeding estimates of $ 1.42 per share and set a record in Apple’s second fiscal quarter.

The results showed the company’s ability during this period to address supply chain concerns that plagued the tech and automotive industries, allowing the company to sell more iPhones than Wall Street expected. “Supply fears were much lower than what we felt in the December quarter,” Mr Cook said in an interview Thursday.

“Kovid is hard to predict,” Mr. Cook added during the conference. He noted that “almost all the affected final assembly plants have now been restarted.”

Apple’s outlook added to the turbulent day as investors worried about the overall economy. Amazon.com Inc.

shares fell more than 10% after the e-commerce giant announced its first quarterly loss since 2015 due to a slowdown in sales growth.

Apple’s results were in line with recommendations from January, when the company forecast a record for March, although growing at a slower pace than the previous quarter, which included the Christmas holidays, when the company celebrated a historic high revenue and profit with the latest iPhone, Mac and iPad.

The $ 97 billion quarter ranks third in Apple’s history in terms of total revenue, but one of the slowest in growth since the pandemic began more than two years ago. Since launching the first iPhone with 5G capabilities in October 2020, the company has seen double-digit growth compared to last year’s quarterly.

Daniel Morgan, a senior technology manager who focuses on technology at Synovus Trust Co., which Apple considers one of the largest holdings, called supply chain problems, Covid-19 and inflation “the biggest street worries” this quarter. Bernstein Research analyst Tony Sakonagi reiterated this sentiment in a note this week, predicting solid quarterly results and asking, “But what then?”

In January, Mr Cook said he expected the effects of supply chain problems to improve in the March period compared to the last three months of 2021, when Apple estimated it had lost more than $ 6 billion in sales due to stock constraints.

But his optimism came before the pandemic broke out again in Asia and the war began in Europe. This month, Apple vendors in China were hit by harsh government blockades aimed at curbing the spread of Covid-19. According to Loup Funds, 85% of Apple products are collected in China, while this region accounts for almost 20% of the company’s annual sales.

In January, Mr Maestro warned that the March quarter would face an unusual comparison to the previous year. IPhone sales were more reliable than usual in the comparative period of 2021, because the delays associated with the pandemic disrupted a typical fall launch and pushed back those sales. Total sales a year earlier increased by 54%.

IPhone sales rose 5% to $ 50.6 billion last quarter from a year earlier. Analysts expected growth of 1%. The company no longer discloses smartphone sales, which account for about half of Apple’s annual revenue.

According to analysts, these sales could benefit from strong demand in China, where the latest iPhones have resonated with consumers. They attribute some expected drop in Apple iPad sales, giving priority to iPhone production during this period. IPad sales fell 2.1% to $ 7.6 billion. Sales of Macs grew 15% to $ 10.4 billion, well above analysts’ expectations of flat results.

In an interview Thursday, Mr Cook said the iPad’s results were hampered by “very significant supply constraints”.

Amid the slowdown in device sales, the focus is on digital content sales. The so-called services segment, which includes iTunes and the App Store, grew 17% to $ 19.8 billion in the three months to March. Analysts expected growth of 17%.

Write Tim Higgins at Tim.Higgins@WSJ.com