Apple (AAPL. O) In the early morning of April 29, Beijing time, the US stock market released its fiscal second quarter 2022 financial report after hours (as of March 2022).
$Apple. Why did the USFY2022Q2 core data exceed market expectations, but fell 2.24% after hours?
1) Revenue: Quarterly $97.3 billion, +8.6% year-on-year, exceeding market expectations ($94 billion);
2) Net profit: $25 billion in the quarter, +5.8% year-over-year, exceeding market expectations ($23.4 billion);
3) Business situation: iPhone achieved revenue of $50.6 billion, +5.5% year-on-year, exceeded market expectations ($49.4 billion) / Mac achieved revenue of $10.4 billion, +14.6% year-on-year, exceeded market expectations ($9.1 billion) / iPad achieved revenue of $7.6 billion, -1.2% year-on-year, exceeded market expectations ($8.11 billion) / Other hardware such as wearables achieved revenue of $8.8 billion, +12.4% year-on-year, below market expectations ($9 billion)/ The Services business achieved revenue of $19.8 billion, +17.3% year-over-year, in line with market expectations ($19.8 billion).
Detailed financial report information can refer to the comments of The Dolphin Jun of The Longbridge "Crazy Money Apple, It's Time to Worry About Growth!" | Earnings Season
Call incremental information collation:
1) Hardware side: iPhone: Growth comes from the sales of the iPhone 13 series and iPhone SE. Active installs of the iPhone reached an all-time high in all regions; Mac: Nearly half of customers who bought a Mac were using the product for the first time; iPad: Installs reached an all-time high in the quarter, with more than half of new users using the product for the first time; wearable and other hardware: More than two-thirds of Apple Watch's new customers were exposed to the product for the first time;
2) Software services: The App Store, music, cloud services, and AppleCare all set records, and video, advertising, and payment services also set records in the quarter. There are currently more than 825 million paying subscribers, an increase of more than 165 million in the last 12 months alone. The company's previous service business was mainly for consumers (to C), and then it will also develop the enterprise scene (to B);
3) The impact of the epidemic in China: China's sealing and control has not yet begun this quarter, but there is indeed a problem of tight supply, and the supply shortage has eased a lot compared with the fourth quarter of last year, which is caused by the silicon shortage of the whole industry. The next two reasons for the tight supply are the disruption of production related to the epidemic, and the silicon shortage across the industry will continue;
4) Share repurchase matters: The Board of Directors has authorized an additional $90 billion for share repurchases, raising the company's dividend by 5% to $0.23 per share, and we continue to plan to increase dividends every year in the future;
5) Guidance for the next quarter: In terms of revenue, the company is still affected by the epidemic and chip tension in the next quarter, and the expected impact is 4-8 billion US dollars (only affected by chip supply in this quarter, and this value includes the impact of the epidemic in China next quarter); in terms of growth rate, the exchange rate impact is about 3% (the impact in this quarter is about 2%), the Russian side is affected by about 1.5%, the service sector still maintains double-digit growth, but the growth rate declines sequentially; gross margin, it is expected to be between 42-43%, and the guidance is lower than that of this quarter 43.7%; operating expenses, $12.7-12.9 billion, slightly higher than the quarter;
6) Potential acquisitions/use of funds: Companies are always looking for quality assets, but we will only acquire things that are strategic. We've acquired a lot of small companies now, and we're going to continue to do that for intellectual property and great talent. If given the opportunity, the company will make a bigger acquisition.
Original text of the conference call:
1. Management report
Overall Performance:
We recorded revenue of $97.3 billion in the quarter, a 9% year-over-year increase. On the product side, revenue was $77.5 billion, up 7% from the same period last year; the Services business generated a record revenue record of $19.8 billion.
The company's gross margin was 43.7%, down 0.1% from the previous quarter. Seasonal leverage losses and unfavorable foreign exchange were partially offset by better product performance; product gross margin was 36.4%, down 2% from the previous quarter, mainly due to seasonal leverage losses and foreign exchange; and gross margin in the services sector was 72.6%, up 0.2% sequentially. Operating cash flow of $28.2 billion, net income of $25 billion and diluted earnings of $1.52 per share are quarterly records for the same period.
Sub-business performance:
With the exception of the iPad, there was growth in every product category, as the iPad remained heavily constrained throughout the quarter.
iPhone revenue increased 5% year-over-year to a record $50.6 billion amid tight supply, thanks to strong customer support for the iPhone 13 Series and iPhone SE. Active installs of iPhone are at an all-time high in all regions.
In the case of the Mac, revenue of $10.4 billion hit an all-time high of $10.4 billion despite tight supply, a 15% year-over-year increase driven by strong demand for the MacBook Pro, and nearly half of Mac-buying customers are using the product for the first time.
iPad revenue of $7.6 billion decreased 2% year-over-year due to ongoing supply constraints. iPad installs hit an all-time high during the quarter, with more than half of customers who purchased an iPad in the quarter using the product for the first time.
Wearables, Homes and Accessories set a record of $8.8 billion in the quarter, up 12% year-over-year. The wearables business doubled in 3 years, and the Apple Watch continued to expand its reach, with more than two-thirds of customers who purchased the Apple Watch in the quarter being exposed to the product for the first time.
Services revenue reached $19.8 billion, up 17 percent, with the App Store, music, cloud services, and AppleCare all setting records, and video, advertising, and payment services also setting records in the quarter.
Installed capacity continues to grow, reaching record highs in every region and major product category. Paid subscriptions continue to show very strong growth. There are currently more than 825 million paying subscribers, an increase of more than 165 million in the last 12 months alone.
Given our continued confidence in our business now and in the future, today, our Board of Directors has authorized an additional $90 billion for share repurchases, we have also raised our dividend by 5% to $0.23 per share, and we continue to plan to increase our dividend each year in the future.
guidelines:
In view of the recent ongoing uncertainty around the world, we do not provide revenue guidance. We share some directional insights based on the assumption that the impact of COVID-related on our business will not be worse than the current situation we are predicting today.
Revenue: Next quarter's revenue performance will be affected by a number of factors year-on-year. Supply constraints caused by PANDEMIC-related disruptions and industry-wide silicon shortages are impacting our ability to meet customer demand for our products. We expect these limits to be between $4 billion and $8 billion, which is much larger than we experienced in the quarter. The disruptions associated with the outbreak have also had some impact on customer demand in China.
Growth rate: Foreign exchange is expected to adversely affect the year-on-year growth rate by nearly 3%. In addition, we suspended all sales in Russia during the quarter. This will affect the year-over-year growth rate of about 1.5%. The services segment is expected to continue to maintain double-digit growth, down from the quarter's performance.
Gross margin: Gross margin is expected to be between 42% and 43%.
Operating expenses: Operating expenses are expected to be between $12.7 billion and $12.9 billion.
Other expenses are approximately $100 million, excluding any potential impact on a small number of investments at market value, and our tax rate is approximately 16%.
Second, analyst questions and answers
Q: Under the fluctuating macro situation, what internal or external indicators should be paid attention to to determine the impact on product demand?
A: Obviously we are experiencing inflation, which is evident in our gross margin last quarter and our operating costs in the last quarter, and the guidance for this quarter is also based on assumptions about inflation. While we are also looking at the impact on the demand side, our focus is now more on the supply side.
Q: Which products will have the greatest impact on supply and demand from China's epidemic containment?
A: In the second quarter, China's sealing control has not yet begun, but there is indeed a problem of tight supply, and the supply shortage has eased a lot compared with the fourth quarter of last year, which is caused by the silicon shortage of the whole industry. The next two reasons for the tight supply are the disruption of production related to the epidemic and the continued silicon shortage across the industry. We estimate that this will cause $4 billion to $8 billion in damage, which is mainly concentrated in Shanghai. The good news is that almost all of the affected factories are now reopening. So the $4 billion to $8 billion range depends on how well the business is recovering and operating. The number of COVID-19 cases reported in Shanghai has declined in the past few days. We have reason to be optimistic.
Q: Talk about sales growth by region? Especially Russia, Europe and China.
A: In the Americas, we achieved very strong growth of 19%; in Europe, we grew sales by 5%, and although in March we suspended sales in Russia (so our sales performance was affected for a month in the quarter) but in some Western European countries, we did very well. It was a very good quarter for us and was basically in line with our expectations.
The U.S. was better than we expected. China once again broke our quarterly record. This year's iPhone release time is different from last year's impact on this quarter's results, because a year ago we released products later than this year, so some channel vendors were not prepared in the second fiscal quarter of the previous fiscal year, which also had a certain impact on sales at that time. Japan and the Asia-Pacific region have been affected by foreign exchange. At constant exchange rates, Japan's economic growth will be in line with the company average. The Asia-Pacific region has also been affected by the foreign exchange crisis, with the U.S. dollar appreciating against most currencies, as well as differences in iPhone release times. But we can't ignore the supply constraints this quarter, and without the supply constraints, our performance would obviously be better. Overall, we are very satisfied with the performance of the company's global business.
Q: What percentage of the $4 billion to $8 billion loss due to tight supply just mentioned can be covered by demand from new products released later in the fiscal year? Which products of the company are the most affected by tight supply?
A: This will affect most of the product categories. As for whether it can be compensated, we believe that some can be remedied, but some cannot be, because part of the consumer demand is emergency. This proportion is difficult to estimate. We discuss internally and make predictions, but we don't publicly disclose this result, and it's hard for me to answer your questions about undisclosed products. The loss of $4 billion to $8 billion is just a gradient projection based on the varying degrees of shanghai resumption of work.
Q: Inflation has brought about rising supply chain part prices, and new processes have also brought about higher costs, has Apple successfully coped with inflationary pressures without raising product prices and not affecting gross margins?
A: The price change trend of parts and components is also different, some are also declining, we are still concerned about the overall cost situation, for the challenging environment, our current response is still reasonable.
Q: Apart from Russia and China, have other regions such as Western Europe or the United States seen weak demand for products?
A: In contrast, we're happy with the growth of the iPhone last quarter because the release time of the first quarter of last year was very different from the release time of the first quarter of this year, so Q2 is naturally in different positions on the new product curve. So it's a very difficult comparison. Last quarter, the situation in the Americas was quite good. Of course, the U.S. is the main region, and the U.S. was quite strong last quarter.
Q: Have you considered holding more buffer inventory or even outsourcing your own chips to avoid supply risks? (COVID-19, blackouts, trade wars, shipping challenges)
A: Our supply chain is global, so products are produced all over the world. We've done a lot of preparation in the U.S., and as more and more chips are produced here, we're likely to do more and continue to optimize. I think our supply chain is very resilient, and the problem now is obviously mainly silicon shortages, and everybody is trying to solve this problem. We already know what to do to change and are doing it. In this industry, it is not possible to hold large amounts of inventory, so it is necessary to work on cycle times in order to complete tasks quickly and take strategic inventory at points in time that require buffering to cope with supply disruptions. At the moment, we can't have a buffer on silicon, so we try to shorten the time it takes for silicon to go from fab production to final assembly plant.
Q: We've been talking about supply chain issues for many quarters, will it ease up in the second half of this year?
A: I guess you're talking about silicon shortages. I don't want to make predictions because it requires understanding the overall demand and supply situation on a global scale, even those outside of the ones we're in. I'm not an expert on that. This is also largely influenced by the strength of the different market economies. So I think there are different levels of results, and what we're focused on is trying to do it well, regardless of how that question is answered.
Q: iPhone SE3 product cycle comparison with iPhone SE. In the past, North America has been the region with the greatest demand. What do you think is the demand for current products in different regions?
A: We see this granularity of data as sensitive data that our competitors want. So I'm not going to answer that question. When you narrow it down and look at the iPhone as a whole, we're very happy with the iPhone 13 series and the strength we've seen in this cycle.
Q: The growth rate of the service business is very good, and the gross profit margin is stable at about 72%, is there still room for upside in the long run?
A: We are optimistic about the momentum of the service business. The first reason is that the installed base of our active equipment continues to grow very well, which is the driving engine of our services business. The second reason is that the level of user engagement that we're seeing on our platform continues to grow, and the sheer number of paid subscriptions on our platform is pretty staggering, 825 million. In the last 12 months alone, it has increased by 165 million. And, we plan to add new services and new features that we believe our customers will enjoy. As a result, we think the momentum for growth is strong.
The growth rate may change a little, especially during the pandemic, as we go through some cycles of closure and reopening. We will improve this issue by continuously meeting customer needs, increasing our product portfolio, and improving the quality of our services.
We expect growth to be lower than the 17% we reported this quarter next quarter. Forex is a problem because the dollar is very strong at the moment. We suspended sales in Russia. So we need to take that into account.
Q: You talked about the loss of supply constraints of $4 billion to $8 billion, which is a considerable number compared to revenue, is there a bigger problem with Apple's supply chain than in the last 3 quarters?
A: What happened during the COVID-19 pandemic has changed in a few quarters. For example, in this quarter, we were limited to silicon shortages, but we gave this $4 billion to $8 billion range not only including silicon, but also China constraints. So it's different and we're currently seeing additional limitations. That's the fundamental difference.
Q: How will forex, Russia and supply chain issues affect QOQ?
A: We are facing supply constraints caused by COVID-related disruptions and silicon shortages, which are expected to be between $4 billion and $8 billion, far more than we were in this quarter, and the COVID-19-related disruptions did not affect the quarter. On the forex side, we expect the impact on growth rates to be close to around 3%. The impact on growth rates in the quarter was about 2 percent; in Russia, the impact on an annual basis was about 1.5 percent. This reflects the situation in the quarter. We suspended sales in Russia in early March, so this had a partial impact on the quarter. Most of the current iPads and Macs are affected, the demand market for these products is very good and has been limited for several quarters, and the services business is also growing at a double-digit rate. So that gives us confidence in the next quarter and beyond.
Apple generates a lot of cash flow every year, but $90 billion (buyback amount) has reached 3% of its market value. There are now a lot of assets that can work synergistically with Apple, such as Teladoc or Peloton or Netflix in the content space. Why isn't it time for Apple to buy these assets, but to buy back shares?
A: We're always looking for quality assets, but we're only going to buy something that's strategic. We've acquired a lot of small companies now, and we're going to continue to do that for intellectual property and great talent. If given the opportunity, we wouldn't neglect to make bigger acquisitions.
Q: In terms of the services business, how do you view the long-term opportunity for monetization of the corporate market?
A: The vast majority of what we do in the services business is aimed at the end consumer. We understand that the enterprise market is a huge opportunity for us. For example, we recently launched a new subscription service in the U.S., which we call Apple Business Essentials, and essentially, we support small businesses 24/7 to support small business owners' device management, which we think small businesses will be interested in. We're already selling AppleCare to enterprises today, but we know that the enterprise market is a very interesting market for us, and we put a lot of effort and effort into that. We believe we have great opportunities for growth.
Q: What are the strategic changes in freight and global production?
A: Freight forwarding is challenging, both from an inflation perspective and from a usability perspective. The focus now is on delivering the goods to the customer in any way we can, and we can do that. But I would like the base rates to be reset a bit, especially for both sea and air freight, which are under inflationary pressure, in part due to COVID and other reasons. I guess. In terms of global regional production, we are constantly making adjustments. I don't want to go into those details because we think it's sensitive information, but we're constantly taking action to optimize the current situation.
![Coca-Cola Company's 2022 first quarter report: revenue and earnings per share exceeded market expectations[fig]](data:image/gif;base64,R0lGODlhAQABAIAAAP///wAAACwAAAAAAQABAAACAkQBADs=)