Apple's third quarter net sales were 1.4% lower than the same time last year, at $81.8bn. This was broadly in-line with expectations. Products sales fell by almost $3.0bn to $60.6bn, while Services rose from $19.6bn to $21.2bn. Within Products there was a 2.4% drop in iPhone sales to $39.7bn. Wearables, Home and Accessories were the only product area to see an increase.
Despite lower sales and higher research and development spending, operating profit was broadly flat at $23.0bn. Profits were propped up by growing Services sales, which are higher margin.
The installed base of active devices reached record highs in all geographic areas.
The group had net debt of $42.8bn at the start of July, compared with $61.8bn. Apple returned $24bn to shareholders in the quarter through buybacks and dividends, and announced a quarterly cash dividend of $0.24 per share.
Apple shares fell 2.7% in after-hours trading.
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Our view
Apple's third quarter performance was resilient. Revenues were broadly in-line with expectations, despite a tough backdrop.
We're particularly encouraged by progress in Services - things like the Appstore and Apple Music. This area of the business is higher margin because adding new users doesn't involve the same costs involved as building a MacBook or iPhone. As things like the Apple Watch continue to gain in popularity too, we view Services as a great source of long-term growth for both sales and profits.
But for Services to reach its full potential, it relies on growing hardware sales occurring in the first place. And lower iPhone sales spooked the market last quarter. Consumers aren't immune to wider economic pressures and we're seeing that weakness through the broader hardware category. Things like iPhones, Macs and iPads haven't been flying off the shelves. This is perhaps no surprise, but we're inclined to feel positive about the longer-term. Production suggests Apple's expecting a good response to the upcoming iPhone 15, which could show up in next quarter's numbers.
And that optimism stems from the fact challenging conditions come and go, but what seems 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.
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 have impacted supply in recent memory, we expect to see production slowly shift away from China over the medium term.
Something to keep an eye on is 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
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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.
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