The world’s largest business Apple continues to go from strength to strength as the goldilocks era for Big Tech continues in a big way. Apple produced record numbers, turning over more than $80bn in the three-month period from April to June. This mimics other Big Tech names such as Microsoft and Alphabet which have also reported bumper earnings as reporting season takes centre stage in New York. Analysts are anticipating Apple’s bottom line (profit) to be around $86bn for the 2021 financial year and to put this number into perspective, it would match the entire market value of British American Tobacco, which is one of the biggest businesses in the world in itself. Apple is the first and only company to bridge the $2trn valuation, with other Big Tech names Microsoft and Amazon slightly smaller (a few hundred billion dollars). The onset of the coronavirus pandemic has altered life as we know it with brick and mortar businesses suffering when compared to its online-based peers. Despite its record numbers, Apple shares fell lower on chip shortage concerns which have plagued the industry for months now with Tesla founder Elon Musk unpacking the issue on an earnings call earlier this week. Apple said the shortages will affect revenues by around $4bn. – Justin Rowe-Roberts
Device maker leads tech giants in continued streak of dominance.
Apple posted the biggest spring-quarter profit in its 45-year history, leading a streak of record-setting earnings for technology companies even as the pandemic continues to weigh on the global economy.
Not to be overlooked, Google parent Alphabet and Microsoft also said Tuesday that their quarterly earnings excelled, underscoring how the pandemic has shifted life and work online and strengthened some of the world’s biggest and wealthiest companies.
Apple earned $21.7bn in profit for the three-month period that ended in June, while revenue rose 36% from a year earlier to $81.4bn, beating expectations.
The Cupertino, Calif., iPhone maker is on pace for its best fiscal year ever with a projected profit of $86bn for the 12-month period ending in September, according to an average forecast of analysts surveyed by FactSet. That would be about 51% better than last year’s record; analysts a year ago were predicting what now seems like a paltry 11% gain.
“This quarter saw a growing sense of optimism from consumers in the United States and around the world, driving renewed hope for a better future and for all that innovation can make possible,” Apple Chief Executive Tim Cook said. “But as the last 18 months have demonstrated many times before, progress made is not progress guaranteed.”
Google parent Alphabet more than doubled its quarterly profit to $18.5bn after the pandemic drove online buying of groceries and other products, as well as demand for streaming video, bolstering the company’s digital advertising business.
Microsoft posted record quarterly sales after winning new customers for its booming cloud-computing business, Teams workplace-collaboration software and video game offerings. The software giant said revenue rose 21% to $46bn. Net income was $16.5bn.
The three companies, which now have a market value of around $6trn, logged about $57bn in profit, or about $620m a day, during the latest quarter.
Despite the record results, Apple shares fell more than 2% during after-hour trading after the company warned that its rate of growth won’t continue. Microsoft also fell after its videogame business failed to keep up the blistering pace it set earlier in the pandemic, an indication that investors are concerned about whether tech companies can hold on to the gains of the past year.
“Investors believe the good times will soon slow,” Gene Munster, managing partner at Loup Ventures, a venture-capital firm specialising in tech research, said. “At the root of tonight’s sell off is the question of the sustainability of the strength. The numbers are so impressive, comps get difficult and it’s hard for investors to believe the epic growth will continue.”
Investors came into 2021 expecting big things from Apple, thanks to the iPhone 12 lineup and its 5G cellular connectivity. The company has outdone even lofty expectations, benefiting from two developments: the first iPhone in three years with technological advances perceived by longtime customers as worth a new purchase, and accelerated demand for laptops and iPad tablets from workers and students stuck at home during the coronavirus pandemic.
Sales from iPhones rose 50% to $39.6bn during the April-to-June period compared with a year earlier. “The iPhone 12 family continues to do incredibly well,” Chief Financial Officer Luca Maestri said in an interview.
While iPhone sales traditionally fall off in the year after a big launch, the excitement of 5G may carry through fiscal 2022. “With close to 1 billion iPhones in use globally, the 5G upgrade opportunity remains significant, with current US carrier promotions an added tailwind,” William Power, an analyst for Robert W. Baird, wrote in a note to investors this week.
For the year ending in September, analysts have predicted Apple’s total iPhone revenue would rise 36% compared with fiscal 2020 and stay at roughly the same level in 2022 before declining a bit in 2023.
“We’re not predicting the next cycle,” Mr. Cook said, but then noted, “We’re in the very early innings of 5G.”
Apple has been able to avoid big disruptions from the microprocessor shortage now roiling the tech and auto industries. But in April, the company cautioned that the usual drop in sales in the third quarter compared with the second quarter would be greater than normal. At the time, Mr. Maestri attributed the trend, in part, to the chip shortage, and warned it could hurt sales by as much as $4bn. As it turned out, sales fell 8.5% from quarter to quarter, with Mr. Maestri putting the hit from the shortage at “just below $3bn.”
Sales in fiscal 2019 fell 7% from the second to third quarter, compared with a 13% drop the previous year. The outlier was last year when sales fuelled by pandemic buying rose 2.4%.
Part of the quarter-to-quarter drop this year reflects stronger-than-usual demand for the iPhone in the March-ended period. The launch of the iPhone 12 lineup with 5G cellular connectivity was delayed in 2020 because of the outbreak of Covid-19.
The current quarter, however, may be more challenging. The company’s revenue growth won’t be as strong as it was in the April-June period in part because of the chip shortage, Mr. Maestri told analysts. Still, he added, “We are expecting to grow very strong double digits.”