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Apple - iPhone sales disappoint

Apple revenue rose 8.1% to $90.1bn in the fourth quarter, which was better than analysts expected.

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Apple revenue rose 8.1% to $90.1bn in the fourth quarter, which was better than analysts expected. However, iPhone and Services sales were lower than analysts were hoping for, despite growing. There was growth in all regions apart from Japan.

Total operating expenses rose to $13.2bn from $11.4bn, with operating profit increasing 4.7% to $24.9bn.

Apple had net debt of $71.7bn as at the end of September.

Apple's board of directors has declared a cash dividend of $0.23 per share

Apple shares were unmoved in pre-market trading.

View the latest Apple share price and how to deal

Our View

Apple's disappointing iPhone sales are problematic. Hardware sales are Apple's core. The Services arm - things like the App store or Apple Music - can't ensnare customers unless all products are flying off the shelves.

Apple is putting a lot of pressure on its brand to offset the very real pressures of inflation. With the US entering a technical recession and consumer confidence at significant lows, overall performance shouldn't really be knocked in our opinion. Revenue still beat expectations overall in the fourth quarter. Apple's ability to sell highly priced hardware in the current environment, at the pace that it has done, is impressive.

There's extra pressure given the tech giant's exposure to China. Not only is this a manufacturing lynch pin, but an increasingly important area for sales. The worsening economic backdrop in the region does give reason for caution on the demand side too. We'll also be watching demand patterns very closely when the company reports in January. The festive season is a crucial barometer for consumer sentiment, and there's a possibility Apple is going to lose some steam year-on-year when it comes to Christmas sales.

For all the medium-term challenges, Apple still has its 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. And such is Apple's strength, it seems to be avoiding the worst of the inflation-linked tech sell off some of its peers have faced.

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 tiny famous 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. The group's brand power is still formidable, but we think medium term ups and downs are more likely than they have been.

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: 28th October 2022