For calendar Q3 2023, Apple reported a -1% revenue decline (-$600M). A +$3.2B increase in services revenue and a +$1.2B increase in iPhone sales were more than offset by a -$3.9B decline in Mac sales and a -$700M decline in iPad sales. Wearables sales also came in below expectations.
Sales in the U.S. were up +$300M. Apple CEO Tim Cook called out many markets hitting all-time records; the U.S. was not one of them. When discussing U.S. iPhone demand, he said, “It's really too early to call the iPhone cycle, particularly with the constraint around the Pro and the Pro Max, and the U.S. tends to do quite well with those products. It's really too early to tell what the upgrade rates will be and what the switcher rates will be.” Equipment revenue (i.e., iPhones) for Verizon, AT&T, and T-Mobile was $13.6B, down -9.6% year-over-year (-$1.4B) due to a decline in the upgrade rate. For example, only 3.9% (15.6% annualized) of AT&T’s 70.3M post-paid phone subscribers upgraded to a new phone in Q3 2023 compared to 4.3% last year. The softer interest in upgrading, as well as the post-pandemic normalization in consumer electronics, shows up as less traffic to Apple stores, as well as the other retail outlets. Of note, management’s comments led analysts to expect little growth in product revenue for Q4 2023, which implies a decline in the U.S. And so, what’s next?
Industry observers are watching for a new Apple product category. On the Vision Pro (next year), Cook said, “There's a tremendous amount of excitement around the Vision Pro, and we've been very happy to share it with developers. We have developer labs set up in different parts of the world so that they can actually get their hands on it and are working on apps. And I've been fortunate enough to see a number of those. And there's some real blow away kinds of things that are coming out. And so that all looks good. To answer your question about, is it similar to AirPods or Apple Watch? I would say no, there's never been a product like the Vision Pro. And so we're purposely bringing it out in our stores only so we can really put a great deal of attention on the last mile of it. We'll be offering demos in the stores, and it will be a very different process than the normal grab-and-go kind of process.“ These comments are encouraging, but they also leave one to worry that Apple is going to be less of a traffic driver to retail hubs until the second half of 2024.
