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Apple

reported disappointing results for the December quarter, missing Wall Street estimates for both revenue and profits.

Sales in the iPhone, Mac and wearables segments, in particular, were well short of expectations, raising new questions about how well demand for Apple products—and other consumer electronics goods—will hold up in the face of softening consumer spending and a weakening macroeconomic environment.

The stock initially fell about 4% in after hours trading following the report, before recovering some of the losses.

For the quarter, Apple posted sales of $117.2 billion, down 5% from a year ago, falling short of the Wall Street consensus forecast of $121.7 billion. Profits were $1.88 a share, also missing the consensus estimate of $1.95 a share, and down from $2.10 a share a year ago.

CEO Tim Cook said on a call with analysts that sales in the quarter were reduced by nearly 8 percentage points from foreign exchange headwinds—and that sales were therefore higher year-over-year on a constant currency basis. He also said results were hurt by production issues in China for the iPhone 14 Pro and Pro Max, as disclosed last November. And he said that Apple is “not immune” to currently difficult economic conditions.

Apple said iPhone sales in the quarter were $65.8 billion, down 8% from a year ago, and missing the Street consensus of $68.3 billion. The debate on Wall Street will be whether the miss is due only to the company’s China-related production problems early in the quarter, or whether the company is seeing the impact of softer consumer spending.

Cook said on the call that the company believes iPhone sales would have grown year-over-year without the production issues in China.

Mac sales were $7.7 billion, down 29%, and well off the Wall Street consensus view of $9.3 billion. Wearables, home, and accessories revenue was $13.5. billion, down 8.3%, missing the consensus forecast of $15.2 billion.

On the other hand, iPad revenue was $9.4 billion, up 29.6%, ahead of the consensus forecast of $7.9 billion. Services revenue was $20.8 billion, up 6.4%, and a little above the Wall Street forecast of $20.5 billion.

The company saw sales decline in every geography, with Americas sales off 4.3%, Europe off 7%, and Greater China down 7.3%.

Gross margin in the quarter was 43%, down from 43.8% a year earlier.

Apple said it bought back $19 billion of stock in the quarter, and finished the period with $54 billion in net cash.

Apple did not provide specific guidance, but Chief Financial Officer Luca Maestri provided some commentary on the current environment during the company’s earnings call with investors,

He said that total revenue growth for the March quarter would be similar to that in the December quarter, while noting that foreign exchange would reduce sales by about 5 percentage points. Services will grow year over year, he said, but with some headwinds from advertising and gaming due to macro conditions.

Maestri said that both Mac and iPad sales will be down double-digits from a year ago due to difficult comparisons. He said iPhone sales should accelerate from the December quarter. And he said that gross margin in the quarter would be between 43.5% and 44.5%.

Cook said Apple reached an installed base of more than 2 billion active devices, up over 150 million year-over year. The company also said it now has more than 935 million paid subscriptions across its services offerings.

Write to Eric J. Savitz at [email protected]