Apple Inc. is set to report a decline in revenue for the second consecutive quarter, with industry experts suggesting that the tech giant’s sales have been impacted by consumers cutting back on non-essential purchases, including Apple’s widely followed iPhone and Mac computer models. At the same time, the company’s services business is also experiencing a slowdown in growth, perpetuating the overall negative trend. The results come as Apple tries to recover from a pandemic-driven slump that hit its production lines and disrupted its supply chain operations. The following is an analysis of the company’s performance over the recent quarter:
Hardware Sales to Decline by Over 7 Percent
Apple’s hardware sales are expected to drop by more than 7 percent to $71.93 billion (roughly Rs. 1,41,500 crore) over the second quarter, according to a poll of 23 analysts conducted by industry tracker Visible Alpha. While iPhone demand and production have picked up in China after pandemic disruptions, the company may still experience a contraction in premium device demand, with iPad and Mac computers potentially facing pressure from both enterprise and consumer trends. Mac sales, which are responsible for nearly 10 percent of Apple’s revenue, could plunge by a quarter, while revenue from the company’s flagship iPhone model is estimated to have declined by over 3 percent. As per research firm IDC, the global personal computer market has seen a nearly 30 percent drop in sales between January and March, with Apple witnessing a 40 percent drop. Meanwhile, the global smartphone market saw a 13 percent decline for a fifth straight quarter of decline.
Recovery in China may Boost Apple’s Performance
Despite the worldwide pandemic slump in demand, Apple is expected to be buoyed by a recovery in China, its third-largest market. The reopening of the supply chain and a return in consumer demand could work in Apple’s favor, with analysts such as Tom Forte of D.A. Davidson predicting a rise in iPhone sales in this market. Furthermore, the company is benefiting from a near 1 percent decline in the dollar in the quarter, which traditionally sees a slowdown following the holiday period.
Service Business Growth Weakens
Meanwhile, the revenue of Apple’s services business, which includes its video streaming service and App Store, is estimated to have risen by approximately 6 percent, which is considerably weaker than expected. The services unit is seen as a critical growth engine for the company. Recent figures show that the unit’s growth rate over the past quarter was the second-lowest rate since at least the first fiscal quarter of 2017. According to KeyBanc Capital Markets analyst Brandon Nispel, the company needs to focus on growing its market share in developing nations like India and Brazil, where a rise in the number of users could contribute to the company’s overall revenue. Nispel expects Apple to have added 30 million users to its active installed user base (the number of active Apple devices worldwide), which stood at approximately 2 billion at the end of December. Apple is increasing its manufacturing and store presence in India as part of its efforts to expand its supply chain operations and gain new customers. Brokerage Wedbush predicts that this market alone could contribute $20 billion (roughly Rs. 1,63,600 crore) in annual revenue by 2025.
Conclusion
Apple’s performance in the second quarter of the year reflects a challenging climate for hardware sales, coinciding with the general economic slowdown caused by the pandemic. The company can take some comfort from an increase in its user base in key regions such as China and India, as well as an ongoing decline in the dollar’s value. However, Apple needs to focus on growing its market share in developing nations such as Brazil and India, while also addressing falling demand for its hardware products.
