Insights

The Biggest Takeaway From Apple’s Latest Earnings Report

Share prices of Apple (NASDAQ: AAPL) fell 3.7% following the company’s fiscal 2022 second-quarter results, released on April 28, because management had pointed out that the tech giant’s performance in the current quarter will likely take a hit on account of supply chain shortages.
CFO Luca Maestri pointed out on the company’s latest earnings conference call that the global semiconductor shortage and pandemic-related disruptions will weigh on Apple’s ability to meet the demand for its products. As a result, Apple is expected to lose $4 billion to $8 billion in revenue in the current quarter. Apple didn’t provide specific guidance for the quarter, citing an uncertain business environment, but Maestri’s comments were enough to send some investors into panic mode.
Image source: Getty Images.

However, a closer look at Apple’s results tells us that the company continues to dominate the smartphone space in the 5G era, and that’s going to be a big tailwind for the stock in the long run. Let’s see why.
The iPhone stands tall in a tough smartphone market
According to market research firm Canalys, global smartphone shipments fell 11% in the first quarter of 2022 to 311.2 million units. Apple, however, wasn’t affected by this slowdown and increased its shipments by 8% over the prior-year period to 56.5 million units. It is worth noting that Apple was the only major smartphone OEM (original equipment manufacturer) to have increased its shipments year over year, with rivals such as Samsung, Xiaomi, Oppo, and Vivo all taking a hit.
As a result, Apple’s share of the global smartphone market increased to 18% last quarter from 15% in the year-ago period. The growth in iPhone sales is also reflected in the company’s quarterly performance, with the device generating $50.6 billion in revenue last quarter, up 5.5% over the prior-year period. The company’s overall revenue increased 9% year over year to $97.3 billion, while earnings were also up by a similar margin to $1.52 per share.
These numbers were well ahead of Wall Street’s expectations, and the strength in iPhone demand was a key reason that Apple’s revenue and earnings easily cleared consensus estimates. Apple’s iPhone revenue hit a March quarter record — accounting for 52% of the top line — and exceeded analysts’ expectations of $48.4 billion by a comfortable margin.
Another important thing to note is that Apple enjoyed solid iPhone average selling prices (ASP) despite the general gloom in the smartphone market. Dividing Apple’s iPhone revenue by Canalys’ shipment numbers for the previous quarter gives us an ASP of $895, which is quite impressive considering that global smartphone ASP stood at $322 at the end of 2021 per Counterpoint Research.
This combination of solid ASPs and rising volumes set Apple up for solid long-term growth, considering its healthy share of the fast-growing 5G smartphone space, which should help sustain the company’s impressive iPhone momentum.
Apple’s most important product still has a lot of room for growth
Apple is the dominant player in the 5G smartphone market. Strategy Analytics estimates that the company cornered a 31% share of this space in 2021, and the growth in iPhone shipments in the first quarter of calendar 2022 amid the overall contraction in the market indicates that it continues to have a tight grip on this market.
An estimated 538 million 5G smartphones were sold last year, and this figure is expected to hit 1.12 billion units by 2025, according to a third-party estimate. So if Apple continues to hold on to a 30% share of the 5G smartphone market by then — which won’t be surprising considering the moves it is making to expand its customer base — its annual shipments could easily exceed 300 million units by 2025.
Even if iPhone ASP drops to $850 by then — thanks to budget-friendly products such as the iPhone SE — Apple could generate $255 billion in revenue from its biggest product line in three years’ time. That would be a nice jump over the $192 billion revenue that Apple generated from iPhone sales in fiscal 2021, which ended on Sept. 25, 2021.
So investors shouldn’t be worried about the near-term headwinds Apple is facing, as its largest source of revenue should get bigger, and that could help the tech stock regain its mojo in the long run.
Harsh Chauhan has no positions in any of the stocks 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. –

Share prices of Apple (NASDAQ: AAPL) fell 3.7% following the company’s fiscal 2022 second-quarter results, released on April 28, because management had pointed out that the tech giant’s performance in the current quarter will likely take a hit on account of supply chain shortages.

CFO Luca Maestri pointed out on the company’s latest earnings conference call that the global semiconductor shortage and pandemic-related disruptions will weigh on Apple’s ability to meet the demand for its products. As a result, Apple is expected to lose $4 billion to $8 billion in revenue in the current quarter. Apple didn’t provide specific guidance for the quarter, citing an uncertain business environment, but Maestri’s comments were enough to send some investors into panic mode.

Image source: Getty Images.

However, a closer look at Apple’s results tells us that the company continues to dominate the smartphone space in the 5G era, and that’s going to be a big tailwind for the stock in the long run. Let’s see why.

The iPhone stands tall in a tough smartphone market

According to market research firm Canalys, global smartphone shipments fell 11% in the first quarter of 2022 to 311.2 million units. Apple, however, wasn’t affected by this slowdown and increased its shipments by 8% over the prior-year period to 56.5 million units. It is worth noting that Apple was the only major smartphone OEM (original equipment manufacturer) to have increased its shipments year over year, with rivals such as Samsung, Xiaomi, Oppo, and Vivo all taking a hit.

As a result, Apple’s share of the global smartphone market increased to 18% last quarter from 15% in the year-ago period. The growth in iPhone sales is also reflected in the company’s quarterly performance, with the device generating $50.6 billion in revenue last quarter, up 5.5% over the prior-year period. The company’s overall revenue increased 9% year over year to $97.3 billion, while earnings were also up by a similar margin to $1.52 per share.

These numbers were well ahead of Wall Street’s expectations, and the strength in iPhone demand was a key reason that Apple’s revenue and earnings easily cleared consensus estimates. Apple’s iPhone revenue hit a March quarter record — accounting for 52% of the top line — and exceeded analysts’ expectations of $48.4 billion by a comfortable margin.

Another important thing to note is that Apple enjoyed solid iPhone average selling prices (ASP) despite the general gloom in the smartphone market. Dividing Apple’s iPhone revenue by Canalys’ shipment numbers for the previous quarter gives us an ASP of $895, which is quite impressive considering that global smartphone ASP stood at $322 at the end of 2021 per Counterpoint Research.

This combination of solid ASPs and rising volumes set Apple up for solid long-term growth, considering its healthy share of the fast-growing 5G smartphone space, which should help sustain the company’s impressive iPhone momentum.

Apple’s most important product still has a lot of room for growth

Apple is the dominant player in the 5G smartphone market. Strategy Analytics estimates that the company cornered a 31% share of this space in 2021, and the growth in iPhone shipments in the first quarter of calendar 2022 amid the overall contraction in the market indicates that it continues to have a tight grip on this market.

An estimated 538 million 5G smartphones were sold last year, and this figure is expected to hit 1.12 billion units by 2025, according to a third-party estimate. So if Apple continues to hold on to a 30% share of the 5G smartphone market by then — which won’t be surprising considering the moves it is making to expand its customer base — its annual shipments could easily exceed 300 million units by 2025.

Even if iPhone ASP drops to $850 by then — thanks to budget-friendly products such as the iPhone SE — Apple could generate $255 billion in revenue from its biggest product line in three years’ time. That would be a nice jump over the $192 billion revenue that Apple generated from iPhone sales in fiscal 2021, which ended on Sept. 25, 2021.

So investors shouldn’t be worried about the near-term headwinds Apple is facing, as its largest source of revenue should get bigger, and that could help the tech stock regain its mojo in the long run.

Harsh Chauhan has no positions in any of the stocks 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.

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