Apple 22Q4 Review: 2023 will not be an easy year for Apple

In 22Q4, Apple's revenue was US$117.154 billion, a year-on-year decrease of 5.48, which was lower than expected for the first time. It was the first decline in performance since 2019 and the largest single-quarter decline since 2016. The decline in Apple's revenue this time is mainly due to the weak downstream demand of consumer electronics. In the downturn of the entire optional consumption and consumer electronics industry, Apple also has difficulty surviving alone. Fluctuations in exchange rates also contributed to losses of $80 billion.

In terms of profitability, Apple’s gross profit was US$50.332 billion, a year-on-year decrease of 7%, and its gross profit margin was 42.96%, a slight increase from the previous quarter. Operating profit was US$36.016 billion, down 13.19% year-on-year, mainly due to a 22.25% increase in R&D expenses year-on-year, operating profit margin increased to 30.7% from the previous quarter, net profit was US$29.998 billion, down 13.38% year-on-year, and net profit margin increased to 25.61% month-on-month.

From the perspective of segmented business, the revenue of the service business is 20.766 billion US dollars, YoY+6.41%. The slowdown in revenue growth is expected to be mainly due to the slowdown in AppStore revenue and the sluggish revenue in the mobile game market.

This ToC consumption and subscription business largely depends on the user's spending power, and is expected to pick up as the economic situation improves.

Apple now has more than 935 million paying customers, up 150 million over the last 12 months (YoY+16%), as its hardware installed base and paid penetration continue to rise.

In addition, revenue from iCloud, ApplePay, and Apple Music hit all-time highs.

In terms of hardware, the total revenue was 96.388 billion US dollars, a year-on-year decrease of 7.7%. Among them, the iPhone business revenue was US$65.775 billion, a year-on-year decrease of 8.17%, which was a relatively large decline, due to the dual impact of supply constraints (Foxconn factory in Zhengzhou) and sluggish demand. With ASP continuing to grow, the decline in revenue can only be due to the decline in shipments.

At the same time, judging from the iPhone 14, the innovation of the iPhone has clearly entered a bottleneck period, and disruptive surprises are hard to come by. Users' demand for mobile phone functions has also begun to enter a marginal decline. Therefore, in the general economic environment, it is difficult to drive consumers to change Phones, especially the quality of iPhones are still very good, resulting in a further extension of the replacement cycle.

Other hardware business aspects.

iPad business revenue was US$9.396 billion, a year-on-year increase of 29.64%, mainly benefiting from the recovery of supply and the low base in the same period last year. There is currently news that Apple may release a folding screen iPad or a foldable notebook in 2024, and there may be no new iPad product releases in the next 9-12 months.

The revenue of the Mac business was US$7.735 billion, a sharp decline of 28.72% year-on-year, mainly due to the weak PC market, enterprises cut IT hardware expenditures, and the demand for Mac was consumed in advance by remote office in the early stage.

The revenue of wearable and other businesses was US$13.482 billion, a year-on-year decrease of 8.29%, which was also caused by the economic downturn and insufficient demand for new products.

In the fourth quarter of 2022, global smartphone shipments fell 18.3% year-on-year to 300.3 million units, the largest single-quarter decline on record. Full-year shipments in 2022 fell 11.3% year-on-year to 1.21 billion units, the lowest annual shipments since 2013, mainly due to a sharp drop in consumer demand, inflation and economic uncertainty.

It is expected that the decline in consumer electronics shipments will narrow in 2023 and may rebound in 2024. In the short term, it is difficult to make major innovation breakthroughs in the development of smartphones. The performance of mobile phones is excessive, the innovation of new products is insufficient, and the replacement cycle is further extended.

So from the second half of 2023, we can pay attention to the opportunity of recovery.

In the downturn of the consumer electronics market, Apple continues to increase its share in the global smartphone market with its strong brand and product strength. In 2022, the iPhone's market share will be 18.8%, which is a substantial increase from 17.3% in 2021. Gain a more favorable market position.

Assuming that there is no new product that can replace mobile phones within 5 years, Apple will definitely return to the king after it has stepped out of the bottom of consumer electronics.

The growth of the service business is very important to the company's performance and valuation. At present, paying users have increased to 935 million, and the company now has a total of more than 2 billion active devices. With the continuous improvement of payment penetration, the performance of the future service business can continue to contribute to profits

Apple is the only company that has not announced layoffs. On the one hand, of course, it is because of the company's own strong profitability and strength, and on the other hand, the company's judgment has not been overly pessimistic. But we can pay attention to the release of profits brought about by some cost reduction and efficiency enhancement measures introduced in the future.