The bear market and the accompanying macroeconomic uncertainty have weighed on even the most resilient technology companies. One such example is Apple (AAPL 0.04%). Despite delivering all-time or quarterly records in each of the preceding four quarters, the company has been buffeted by the gale force economic headwinds that have persisted over the past year. Investors, fearing the iPhone maker’s performance would be overpowered by high inflation and rising interest rates that have become headline news, have pushed the tech stock down 25% since its peak reached early last year.
As if to confirm investors’ fears, global smartphone shipments suffered their worst performance in more than 10 years. But the single bright spot in the data was the ongoing strength of the iPhone.
Image source: Apple.
An Apple a day
Worldwide smartphone shipments declined 17% year over year in the fourth quarter, the market’s worst performance in a decade, according to data compiled by market analyst firm Canalys. This capped off a year when shipments were down 11%, reflecting fewer than 1.2 billion smartphones, the lowest total in more than 10 years.
Bucking that trend was Apple. Not only did the company increase share at the expense of rivals, but it reported its highest quarterly market share ever, at 25%. This was enough to once again steal the crown from Samsung, which saw its share shrink to 20%.
Economic headwinds
“Smartphone vendors have struggled in a difficult macroeconomic environment throughout 2022,” wrote Canalys Research Analyst Runar Bjørhovde. Furthermore, “Q4 marks the worst annual and Q4 performance in a decade,” he added. The report noted that merchants were “highly cautious” about taking on additional inventory, which helped fuel the dismal performance in the fourth quarter. The holiday season was marked by industrywide sales and incentives, which helped to reduce already high inventory levels.
One point that stood out was weakness that began to creep into high-end products, following slower demand for low- and mid-range products, which had slumped in previous quarters.
The pressure on smartphone sales is expected to continue throughout 2023. The market is expecting flat to marginal growth over the coming year, according to Canalys, as economic headwinds continue. “Though inflationary pressures will gradually ease, the effects of interest rate hikes, economic slowdowns and an increasingly struggling labor market will limit the market’s potential,” added Canalys research analyst Le Xuan Chiew.
A broken record
While Apple reported record growth in each of the preceding four quarters, a deeper look shows the macroeconomic situation took a toll. In the fiscal 2022 first quarter, revenue grew 11% year over year, which was the high point for the year. During the second, third, and fourth quarters, sales grew 9%, 2%, and 8%, respectively.
That’s not to downplay the company’s robust performance in the face of headwinds, but rather to illustrate that even Apple could eventually succumb to the weakening consumer environment. In the fourth quarter, CEO Tim Cook noted, Apple’s revenue grew by double digits outside the U.S., weighed down by the impact of a strong dollar. That headwind is expected to continue well into next year.
Inflation remains historically high and interest rates are expected to climb higher in 2023. Even the most well-situated consumers are beginning to be more cautious in their spending.
Investors should watch closely what Tim Cook and company have to say about the most recently completed quarter and what it reveals about future demand. Apple hasn’t provided guidance since the onset of the pandemic, due to the accompanying uncertainty.
Apple is scheduled to report its earnings for the 2023 fiscal first quarter — which includes the critical holiday sales period — on Thursday, Feb. 2, after the market close.
The results should give us some indication about whether Apple will be able to hang on to those hard-earned market share gains.
Danny Vena has positions in Apple. 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.
