Apple Projects Strong Sales Despite Chip Constraints

On Thursday, Apple announced better-than-expected sales forecasts, prompting a more than 3% rise in its stock, even as the company acknowledged ongoing issues with chip supply.

Apple’s executives anticipate revenue growth between 14% and 17% for the third quarter of the current fiscal year, surpassing Wall Street’s expectations of a 9.5% rise to $102.93 billion, according to LSEG data.

In its earlier report, Apple showed stronger-than-expected second-quarter results, driven by consumer interest in the new MacBook models introduced by incoming CEO John Ternas, although supply issues impacted iPhone sales.

The company recorded revenue and profit of $111.18 billion, or $2.01 per share, for the fiscal second quarter concluding on March 28, which exceeded analysts’ projections of $109.66 billion and $1.95 per share, according to LSEG.

Sales for the iPhone, still Apple’s best-selling product nearly two decades after its launch, reached $56.99 billion. This fell just short of expectations of $57.21 billion following the biggest overhaul of the lineup since the iPhone X in 2017.

Challenges in the Supply Chain

Apple CEO Tim Cook noted that iPhone sales were affected by supply constraints on advanced processor chips, essential components of its devices. The chips in the upcoming iPhone 17 series are manufactured using technology from Taiwan Semiconductor Manufacturing Company, similar to that used for many AI chips.

“The demand was unexpected, and right now there’s just a bit less flexibility in the supply chain to secure more parts,” Cook shared with Reuters.

The iPhone 17 series, along with the iPhone Air, were driven by Ternas, who is set to succeed Cook in September. Under Ternas’s leadership, Pro models have more features but at a higher price, while entry-level options like the 17e and base iPhone 17 have remained competitively priced.

This strategy, combined with Apple’s significant purchasing power, has helped mitigate the impact of rising memory chip costs. Per LSEG data, Apple announced a gross profit margin of 49.27%, which surpassed expectations of 48.38%.

Another notable product developed by Ternas is the MacBook Neo, priced affordably at $500 for students. Analysts believe this move could enable Apple to tap into a new $20 billion market for budget laptops, currently led by Google’s Chromebooks. Apple reported Mac sales, including Neo sales for just a few weeks, hit $8.4 billion, ahead of the estimated $8.02 billion.

“The partnership with Google Gemini on Siri shows Apple’s openness to collaborate with external AI innovators,” noted analyst Jacob Bourne from eMarketer. “Investors will be keen to see how Ternas balances Apple’s cautious approach to AI with the need to define the next consumer device in an AI-driven world, especially as expectations for iPhone performance grow more challenging.”

Apple’s annual software developer conference is scheduled for June, where more details about its AI strategies are expected to be revealed.

While Apple doesn’t invest tens of billions in AI like some competitors, its research and development spending increased by 33.5% to $11.42 billion during the second quarter.

“We’re making a significant investment. We believe it’s a major opportunity for both consumers and businesses,” Cook emphasized to Reuters. “We’re fully committed, and the personalized Siri experience is on track for this year.”

Robust Services Sector

Apple’s services sector, which includes revenue from the App Store, reported figures of $30.98 billion in the second quarter, surpassing analyst estimates of $30.39 billion.

According to LSEG, iPad sales reached $6.91 billion, exceeding the anticipated $6.66 billion, while wearables, including the Apple Watch, generated $7.9 billion, also above the expected $7.7 billion.

In China, Apple’s sales amounted to $20.5 billion, outperforming analysts’ projections of $19.45 billion, according to Visible Alpha.

Additionally, Apple has updated its capital return program, having its board approve an additional $100 billion in stock buybacks, maintaining the same level as the previous year.