Apple ticked lower on Friday after the iPhone maker forecast sales for a subdued holiday quarter, which would mark its fifth consecutive year of declines in revenue. The company also cut its quarterly profit forecast and trimmed its capital spending plan for the year. The stock was down 1.5% in early trading, falling more than 3% before the bell. The world’s most valuable firm will lose $40 billion in market value if the losses hold.
The company’s forecast for a slowdown in the holiday quarter came after it reported quarterly earnings and revenues that missed expectations, blaming weak demand for iPads and wearables. “Our forecast of a slowdown in the December quarter is driven by weakness in demand for certain products, most notably iPads and wearables,” Chief Financial Officer Luca Maestri said on a conference call with investors.
But the company’s outlook for the next three months did offer some hope to investors. Its services business, which includes Apple Music, cloud computing, and iCloud storage, has been a strong contributor to growth. It grew to nearly $22.3 billion this quarter, ahead of analyst estimates. Consumers are willing to pay for cloud services even when prices rise.
But it needs to be clarified whether that trend can be sustained. Maestri said that he expected the holiday quarter to be “similar” in revenue to the prior-year period. Analysts expect a revenue total of $89.5 billion, down from $90.1 billion a year ago.
Adding to investors’ concerns is the uncertainty surrounding China, the biggest smartphone market in the world. Analysts expect Apple to take a hit from the country’s recent COVID restrictions, which have prompted companies to shut factories and restrict travel. Apple’s supply chain relies heavily on the country, and the company has warned that the restrictions could cost it $4 billion to $8 billion in revenue this quarter.
Investors also worry that rising interest rates will hurt Apple’s bottom line, as the company is one of the highest-rate-sensitive stocks in the tech sector. The company’s stock has been falling since its August earnings report when it warned about the impact of rising interest rates on revenue.
In the meantime, analysts are looking for signs that the consumer may be reviving and helping drive smartphone demand. Goldman Sachs’ Wamsi Mohan pointed to data that showed U.S. retail sales rose in September. Mohan sees this as a sign that the market’s “panic” over a slower economic outlook might be overblown. “If retail sales continue to grow, that will provide further support for smartphone demand,” he wrote in a note to clients. Meanwhile, Wedbush Securities’ Daniel Ives thinks the market’s concern about a possible ban on iPhones in China is “way overblown.” He says the potential loss of a Chinese market equals only a tiny fraction of the 45 million units he anticipates Apple will sell there this year.