Apple slumps as muted holiday sales forecast, China woes, cloud Q4 earnings

Updated 9:15 am EDT

Apple AAPL shares slumped lower in pre-market trading after the world's most-valuable tech company issued a muted holiday sales forecast that added to concerns surrounding demand for its new iPhone 15 and its slowing revenue growth in China.

Apple said December quarter sales would be flat to last year's $117 billion total, a forecast that fell shy of Wall Street forecasts of a 5% gain, with gross profit margins largely in-line with the 45.2% recorded over the three months ending in October. 

That took some of the shine off of a solid, but by no means spectacular, fourth quarter earnings report that showed the group's fourth consecutive sequential revenue decline and big pullbacks in Mac, iPad and Apple Watch sales. 

Group revenues were down 0.7% to $89.5 billion, just ahead of the Street consensus forecast of $8.28 billion, with iPhone sales surprising to the upside with a 2.8% gain and a $43.81 billion total. 

Earnings for the quarter were up 13.2% to $1.46 per share, powered for the most part by solid services revenues – Apple's highest-margin business – and a record overall total for its global installed user base. 

"The flat year-on-year revenue guidance for the December quarter was lower than the Street's expected 5% growth primarily due to weaker Mac, iPad, and accessories," said Wedbush analyst Dan Ives, who carries and 'outperform' rating with a $240 price target on Apple stock. 

"Very importantly, underlying iPhone and Services growth looks relatively healthy in the holiday quarter and generally in-line with whisper numbers," he added. "The stock could be a little weak at the open on the headline noise/December guidance but we would be strong buyers as growth is back to the iPhone franchise, Cupertino margin story goes higher, and Services is now firmly back to double-digit growth."

Related: Apple earnings top forecasts, but sales fall for 4th straight quarter on Mac, China weakness

Another notable area of weakness in Apple's quarterly report came from China, where sales fell 2.5% from the same period last year to $15.1 billion, amid reports that Beijing has banned the use of iPhones by government employees and state-backed enterprises in order to support the launch of state-backed tech group Huawei's new Mate 60 handset.

China-based subsidiaries of Foxconn, the world's biggest assembler of Apple iPhones, are also now reportedly being probed by tax authorities following Founder Terry Gou's decision to run for president in Taiwan. 

Apple CEO Tim Cook struck an upbeat tone of on the region's prospects in his conference call with analysts last night, however, and noted that a stronger U.S. dollar clipped nearly 6 percentage points from overall China sales, suggesting constant-currency growth was positive.

"Underneath that, if you look at the different categories, iPhone actually set a September quarter record in mainland China," Cook said. "In addition to that, we had the top four selling phones in Urban China for last year. I just took a trip over there and could not be more excited about the interactions I had with the customers and employees and others."

Still with China-based subsidiaries of Foxconn, the world's biggest assembler of Apple iPhones, now being probed by tax authorities following Founder Terry Gou's decision to run for president in Taiwan, challenges in the world's second-largest economy remain acute.

"We believe Apple still faces China risk on three fronts, said D.A. Davidson analyst Tom Forte, who carries a neutral rating on Apple stock and lowered his price target by $14 to $166 per share following last night's earnings.

"The weak macroeconomic conditions in the country are negatively affecting it sales and we see Apple as caught in the middle of escalating tension between the U.S. and Chinese governments," he added. "The company is also still overdependent on China on a supply chain standpoint." 

Revenues from Apple's key services business -- which includes Apple Pay, iCloud and Apple TV --- rose 16.3% to $22.31 billion, well ahead of the $21.35 billion forecast.

Hardware sales, as expected were soft: Mac sales fell 33.9% from last year to $7.61 billion, Apple said, and iPad sales were down 10.2% to $6.44 billion. Wearables sales, which includes the AppleWatch, fell 3.4% to $9.32 billion.

"We believe the biggest negative from the results was the decline in China, worse than we expected, as we look for greater clarity about Apple's outlook for the region in the December quarter, given concerns about increasing competitive pressures in the region," said CFRA analyst Angelo Zino, who carries a 'buy' rating on Apple stock.

"That said, growth of 16% from Apple's higher margin Services business was a bright spot (beating our 10% growth forecast), an acceleration from the 8% pace in the June quarter and 5% in the March quarter."

Apple shares were marked 2.7% lower in pre-market trading to indicate a Friday opening bell price of $173.62 each. 

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