Shares of Apple (AAPL -0.61%) rose nicely last week, boosted by the company’s stronger-than-expected fiscal third-quarter results. The tech giant’s top and bottom line were both better than analysts were expecting.
While the strong quarterly results were nice, it may have been a few comments in the earnings call that solidified the Street’s approval of the quarterly update. Among other things, management said it expected strong growth in fiscal Q4 and that iPhone demand remained robust. Here’s a closer look at the commentary about these topics and more.
1. Apple expects accelerated growth
Though management once again refrained from providing specific quarterly guidance due to the uncertain macroeconomic environment, management did provide some directional context.
“Overall, we believe our year-over-year revenue growth will accelerate during the September quarter compared to the June quarter,” said Apple CFO Luca Maestri. While an acceleration from Apple’s 2% growth rate in fiscal Q3 may still ultimately translate to a small growth rate for fiscal Q4, investors should note that the tech company is up against a serious currency headwind; this guidance factors in a predicted 600 basis points of negative year-over-year foreign exchange impact.
Making the guidance even more impressive, it also includes some expected supply constraints. Though those supply constraints are expected to be lower than what Apple endured in fiscal Q3.
2. iPhone demand is strong
When asked whether the current macroeconomic environment is negatively impacting demand for its products, Apple CEO Tim Cook had an optimistic response, noting that there was “no obvious evidence of macroeconomic impact” to demand for iPhone. Further, Cook said Mac and iPad supply was so constrained that the gap between supply and demand made it impossible to even test demand levels of the products.
But Cook did note that its services segment is being negatively impacted by weaker digital advertising spend as the result of the macroeconomic environment. Management also said its “wearables, home, and accessories” segment saw “some impact” from the macroeconomic environment. iPhone, however, is by far Apple’s largest product segment — so investors should generally be happy with the level of demand for Apple’s products.
3. Apple’s cash gives it options
Revealing it had a $179 billion position in cash and marketable securities at the end of its fiscal third quarter, with net cash of $60 billion, one analyst asked if Apple is considering any potentially accretive acquisitions.
Based on Cook’s response, the company seems happy with its war chest of cash at a time when potential acquisition targets will likely go for lower prices. In fact, the company could even make a meaningfully sized acquisition — a move that would break from Apple’s typical approach to only buying small companies.
“[W]e would buy something that is strategic for us,” Cook said. “To date, we have concentrated on smaller [intellectual property] and people acquisitions. But I wouldn’t rule anything out for the future, and obviously, we are constantly surveilling the market.”
So even though there are signs of significant macroeconomic uncertainty around the world, the only major signs of these challenges in Apple’s consolidated results are the company’s foreign exchange headwinds and some weakness in advertising. Perhaps Apple’s loyal customer base, pricing power, and continued product innovation are meaningful enough edges that the company can do well even in a tough operating environment.
Daniel Sparks has positions in Apple. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
