Apple's big quarter shows that smartphones aren't getting hit by weakening macroeconomic conditions

Published Fri, Apr 29 20226:10 AM EDTUpdated Fri, Apr 29 202211:56 AM EDT

Key Points

Ahead of Apple's second-quarter earnings on Thursday, several analysts wondered if the iPhone maker would be an early sign of weakening consumer confidence in an inflationary environment.
Apple's earnings report on Thursday clearly said no.
"But right now, our main focus, frankly speaking, is on the supply side," Apple CEO Tim Cook said.

Ahead of Apple's second-quarter earnings on Thursday, several analysts wondered if the iPhone maker's results would show signs of weakening consumer confidence , especially among well-off shoppers. Apple's numbers clearly said no. Apple sold more than $50 billion in iPhones in the quarter, and the ceiling for the company remains how many devices it can make — it doesn't depend on whether consumers are starting to hold on to their old phones for longer or if they are putting off big purchases. "We're monitoring that closely," Apple CEO Tim Cook said on an earnings call in response to a question about inflation and how macroeconomic conditions are affecting demand for Apple products. "But right now, our main focus, frankly speaking, is on the supply side." Apple's strong results came the day after Qualcomm, one of the leading makers of Android chips, reported that its own handset chip sales grew 56% year over year. Taken together, the results suggest that the premium smartphone market could be resilient if macroeconomic conditions deteriorate and consumers start watching their expenses. Although Apple released a low-cost iPhone model during the quarter, most of its phones cost $800 or more. Qualcomm supplies chips for some less expensive phones that are popular in emerging markets, but it's most prevalent among high-end Android devices that go toe-to-toe with Apple's phones in price. Cook made it clear on the call that Apple is still limited by the supply it can make, not the demand for its goods. The bad news in Apple's outlook was linked to lockdown-related supply challenges in China, not sagging demand in the U.S. and Europe. In fact, between year-to-date through March 27, Apple reported $50.57 billion in total sales in the Americas — a 20% rise from last year. There are some data points that suggest smartphone unit sales could be falling, although so far the drivers for the decline seem to be supply and other factors such as the Ukraine-Russia war. CounterPoint Research estimated on Thursday that the number of smartphone units shipped in the first quarter declined 7% year over year, but it was concentrated in brands such as Xiaomi that focus on less expensive devices in markets like China. Laptop sales, a related product category, look poised to decline this year as a pandemic boom tapers off. There are also signs that the macroeconomic environment is deteriorating. U.S. gross domestic product declined at a 1.4% pace in the first quarter, and Goldman Sachs economists estimate that there is as much as a 30% probability of a U.S. recession based on market signals. U.S. consumer confidence declined in April . To be sure, there isn't a historical precedent for how the smartphone market reacts to deteriorating economic conditions. Traditionally, during a recession, consumers start to delay big-ticket purchases because they are worried about their income or inflation eating away at their spending power. During the last extended recession, in 2008, smartphones were not yet an established product category that almost everyone needs. Now smartphones have over 80% penetration in the U.S. market. The Apple and Qualcomm results this week suggest a broader consumer slowdown hasn't truly started yet or, if it has, the kind of consumers who like to buy pricey new computers and phones may be insulated from the broader economy. Or it could simply show that those kind of shoppers can't go without their new iPhones.

A customers holds the new green colour Apple iPhone 13 pro shortly after it went on sale inside the Apple Store on 5th Avenue in New York, March 18, 2022.

Mike Segar | Reuters

Ahead of Apple's second-quarter earnings on Thursday, several analysts wondered if the iPhone maker's results would show signs of weakening consumer confidence, especially among well-off shoppers.

Apple's numbers clearly said no.