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Apple - better than expected Q2

Apple's second-quarter revenue was better than analysts expected, at $94.8bn.

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Apple's second-quarter revenue was better than analysts expected, at $94.8bn. However, this was still a decline from the $97.3bn a year before. The decline was driven by iPads, Macs and Wearables, Home and Accessories, while iPhones had a record quarter and made up 54% of revenue. Services revenue also rose to $20.9bn from $19.8bn. CEO, Tim Cook acknowledged the "challenging macroeconomic environment".

Operating profit fell 5.5% to $28.3bn, reflecting the lower revenue and increased operating expenses, especially within research and development.

Free cash flow was $55.9bn, down from $69.8bn. Net debt was $51.8bn, excluding $110.5bn of more limited access investments.

A dividend of $0.24 per share was announced, representing an increase of 4%. A $90bn share buyback programme has also been authorised.

Apple shares rose 2.5% in after-hours trading.

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Our view

Despite a beat compared to what Wall St was expecting, Apple's results haven't stirred dramatic market moves. That's because, compared to the same time last year, revenue has fallen.

Consumers aren't immune to wider economic pressures and we're seeing that weakness through the broader hardware category. Things like airpods, Macs and iPads haven't been flying off the shelves. But it's not all bad news. The core product - iPhone - which makes up over half of all revenue, has had a record quarter. This feeds directly into the hand of Services (things like the App store and Apple Music) - a higher number of iPhones in hands means more people becoming ensnared in the Apple ecosystem.

Looking to key battle grounds, China remains front and centre. Not only is this a manufacturing lynch pin, but an increasingly important area for sales. Production disruptions impacted supply for large parts of December and whilst we didn't get any specifics, we expect to see production slowly shift away from China over the medium term.

The demand environment in China should improve though. Having been hit with a slew of lockdowns over 2022, the picture finally looks to be improving. And broadly speaking, demand across the rest of Apple's geographies was a mixed bag, but there weren't any sharp contractions in a given region. That speaks to a wider global slowdown in consumer spending, rather than a company specific issue.

Challenging conditions come and go, but what seem unshakeable is Apple's 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.

That's not to say investors should ignore the competition. 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 famous tiny apple.

Overall, we think Apple remains strong, but future spoils still rely on growing higher-margin areas of the Service business, while creating another generation of coveted products. We've little doubt in Apple's ability to deliver, but those strengths are well priced in. The valuation sits comfortably ahead of the longer-term average meaning ups and downs are more likely.

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.

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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 5th May 2023