Apple holiday forecast disappoints on iPad, wearable demand; Stocks ace

Nov 2 (Reuters) – Apple ( AAPL.O ) on Thursday delivered a sales forecast for the holiday quarter that missed Wall Street expectations, hurt by weak demand for iPads and wearables, sending its shares down about 3% in after-hours trading.

Chief Executive Tim Cook insisted the company’s new iPhone 15 models are doing well in China, seeking to ease Wall Street concerns that Apple is losing market share to a resurgent Huawei and other local smartphone vendors. Sep. Apple’s revenue from China fell 2.5% overall in the fiscal fourth quarter ended March 30, although it grew after accounting for foreign exchange rates, Cook said.

Chief Financial Officer Luca Maestri told analysts on a conference call that sales for the current quarter, which included the Christmas holidays and Apple’s generally huge sales of its new iPhone models, were about the same as a year earlier. Wall Street had expected sales to rise 4.97% to $122.98 billion.

Apple shares, which have risen 37% so far this year, fell 3.4% after hours, following the forecast.

Maestri said Apple expects higher iPhone sales in the first quarter of the fiscal year, despite lower weekly sales in this year’s holiday quarter than last year.

“I would say that as confident as Tim Cook was in China’s future performance, we know there are many potential geopolitical challenges in that market,” said Bob O’Donnell, chief analyst at Technolysis Research.

Apple on Thursday reported sales and profit for the fiscal fourth quarter that beat Wall Street expectations, with a rise in iPhone sales and $1 billion in services revenue offsetting big drops in Mac and iPad sales.

Cook said the company’s new high-end handset models, the iPhone 15 Pro and Pro Max devices, are facing supply constraints.

The Cupertino, California-based company has navigated the global smartphone slump better than its rivals, but faces an uneven economic recovery in China, a key market.

“We believe investors should heave a sigh of relief as both sales and profits were better than expected, the upside was small and we were concerned about weak sales from China,” said DA Davidson analyst Tom Forte.

Apple said sales for the latest quarter fell about 1% to $89.50 billion, but analysts’ estimates were $89.28 billion, according to LSEG data. Net income rose by around 11%. Earnings per share of $1.46 beat analyst expectations of $1.39 per share, according to LSEG.

Apple faces stiff competition in the smartphone market this year as Huawei Technologies ( HWT.UL ) returns to the field with new phones powered by Chinese-made chips after being shut out of the market by U.S. government trade sanctions for years.

Apple’s sales in China fell to $15.08 billion from $15.47 billion in the fourth quarter a year ago. After accounting for foreign exchange rates, Cook said Apple’s business in China grew year over year, driven by iPhone sales and service revenue.

“In mainland China, we had a quarterly record in the September quarter for the iPhone,” Cook told Reuters. “We have four of the top five best-selling smartphones in urban China.”

Apple is “working hard to produce more” of the iPhone 15 Pro and Pro Max devices, Cook said. “By the end of this quarter, we believe we will achieve supply-demand balance.”

For now, the iPhone is Apple’s biggest seller. Fourth-quarter sales were $43.81 billion, in line with analyst expectations, according to LSEG data.

“We expect (Apple’s fiscal first quarter) performance to improve further as the supply issues of the flagship Pro and Pro Max models are resolved by then,” ITC analyst Nabila Bhopal said. “Demand across regions continues to favor more premium models, and we expect an even larger proportion of those models this year than last year,” he said.

The PC market is also expected to do well in the coming year. Earlier this week, Apple unveiled new Mac machines.

However, Mac sales fell by a third to $7.61 billion, and iPad sales fell 10% to $6.44 billion, compared to $8.63 billion and $6.07 billion, respectively.

Sales at Apple’s wearables division, which includes the Apple Watch and AirPods, fell 3% to $9.32 billion, missing estimates of $9.43 billion, according to LSEG data.

Apple has faced several quarters of declining sales of Macs and iPads, and continued that trend in the fourth quarter.

Apple’s services division, which includes Apple TV+ and recently closed a deal with global soccer superstar Lionel Messi, rose 16% to $22.31 billion, compared with analyst estimates of $21.35 billion.

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