Apple Profit Seen Sliding on China Production, Demand Slowdown

Net sales in China may have plunged by a sixth amid a weakening economy and COVID lockdowns

Two staff members was looking down at the crowd in Taikoo Li shopping center in Chengdu, China through the window of the Apple Store

Zhiyue / Unsplash

Apple Inc. (AAPL), the world's most valuable company by market value, will likely say profit slid in the first quarter of its 2023 fiscal year amid COVID-related iPhone manufacturing delays in China and a tech industry slowdown.

The tech giant will probably say net income fell almost 10% to $31.3 billion, or $1.96 per share, according to estimates from Visible Alpha. Revenue likely slipped 1.4% to $122.2 billion. Apple reports first-quarter results after markets close on Feb. 2.

An October COVID-19 outbreak at the primary Chinese facility making Apple's iPhone Pro products hindered a production process already beset by supply chain difficulties, causing the fabrication of some iPhone models to slow through the end of the year. Though the growth of the global smartphone market is decelerating, iPhones still account for the majority of Apple's net sales. Production delays at the end of the year could weaken Apple's sales during the holiday season, typically the company's highest-revenue quarter.

At the same time, the tech industry is recalibrating as an uptick in digital spending early in the pandemic cools amid inflation and a weaker economy. Leading tech firms, including Microsoft Corp. (MSFT) and Alphabet Inc. (GOOG), have announced broad layoffs of thousands in recent months. Apple has avoided making large-scale cuts after having added new employees at a slower pace than many tech rivals over the last several years.

Apple shares have fallen from highs early in 2022, dropping by 8% in the last year compared with a 10% decline for the S&P 500 Information Technology Sector Index.

One-Year Total Return for S&P 500 Information Technology Index and Apple
Source: TradingView.
Apple Key Stats
  Estimate for Q1 FY 2023 Q1 FY 2022 Q1 FY 2021
Earnings Per Share ($) 1.96 2.10 1.68
Revenue ($B) 122.2 123.9 111.4
China/Rest of Asia Revenue ($B) 29.7 35.6 29.5

Source: Visible Alpha

The Key Metric: Net Sales for China/Rest of Asia

Apple's net sales in China and the rest of Asia are a key measure of the company's success in one of the largest markets worldwide. This is typically Apple's second-largest market after the Americas. Though iPhones remain popular in China, an economic slowdown in the region and the impact of long-standing lockdowns threatens to reduce consumer spending.

Analysts expect that Apple's net sales in Asia plunged by almost 17% for the last three months of 2022 after a period of steadier gains.

Article Sources
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  2. "Largest Companies by Market Cap."

  3. Visible Alpha. "Financial Data."

  4. Apple Inc. "Investor Updates."

  5. Yahoo! Finance. "Apple, ServiceNow avoid job cuts amid mass tech layoffs."

  6. Bloomberg. "Apple’s iPhone Dominated China Last Quarter Despite Disruptions."

  7. CNBC. "China risks loom over U.S. tech giants Tesla and Apple as share prices plunge."

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