Apple suffered from Decrease of Products Sales in 2023 Q1

Apple (NSDAQ: AAPL) announced its 2023 Q1 financial results on February 2, 2023. According to the announcement, total net sales were down 5.5% (3 months, YoY). In this regard, products sales were down 7.7% while services revenue was up 6.4%. In addition, costs of sales for products were down 5.5%.

Operating income and net income were down 13.2% and 13.4%, respectively (3 months, YoY). Gross margin was 43.0% (-898bp, 3 months, YoY) and operating margin was 30.7% (-273bp).

Looking at sales trends by product, sales of Mac, which was the strongest until the previous quarter, were decreased by 28.7% (3 months, YoY). It was followed by Wearable, Home and Accessaries, which decreased by 8.3%. On the contrary, sales of iPad, which had been sluggish until the previous quarter, increased by 29.6%.

By region, Asia Pacific other than the Greater China and Japan was down 2.8% (3 months, YoY). It was followed by Americas of down 4.3%. On the other hand, Greater China was down 7.3% and Europe was down 7.0%. Sales in Japan were down 5.0%

Cash generated by operating activities recorded a cash inflow of 34,005 million USD, down 27.6% (3 months, YoY). On the other hand, free cash flow was 32,560 million USD, up 5.5%. In 2023 Q1, the amount of purchases of marketable securities decreased year-over-year. This seems to have contributed to the increase of inflow of free cash flow. 

In addition, cash outflow by financing activities also increased year-over-year. This was at least partially due to increase of repayments of commercial paper. 

In 2023 Q1, Apple seems to have suffered from lower sales volumes due to price increases brought by the higher raw material costs etc. However, it is worth noting that service revenue continues to grow. 

We note that the sales growth trends of each product seems to have reversed compared to the previous quarter. This could indicate that the decrease in products sales reflects temporary pullback in consumer spending due to prices increases. Anyway, we believe that the strong “Apple popularity” supported by its brand power is still alive.

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