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Apple stock (NYSE: AAPL) is trading higher in early US price action today after the company reported better than expected revenues and profits for the fiscal third quarter of 2022. Apple is the best-performing FAANG stock of 2022 so far after being the second-best performer in 2021.

Apple’s earnings came at a time when Wall Street has been bearish on the forecast for smartphone and PC sales. Both Intel and Micron have warned of slowing chip sales. Global smartphone and PC sales are expected to fall in 2022 after two years of strong growth.

Apple meanwhile posted revenues of $83 billion which were 2% higher than the corresponding period last year and ahead of the $82.81 billion that analysts were expecting. It was a new June quarter record for the company, despite currency headwinds and the exit from Russia. Like many US companies, Apple has also exited the business in Russia which has hurt its earnings.

Looking at the sales breakup, iPhone revenues came in at $40.67 billion which was 3% higher than the corresponding quarter last year and ahead of the $38.33 billion that analysts were expecting. However, Mac revenues fell 10% YoY to $7.38 billion and fell short of the $8.70 billion that analysts were expecting. iPad revenues also fell 2% YoY to $7.22 billion but were higher than the $6.94 billion that analysts were expecting.

The company’s services business reported revenues of $19.60 billion in the quarter. While the revenues increased 12% YoY, the growth has slowed down sharply from the recent quarters, and also missed analysts’ estimate of $19.70 billion.

Amazon, which also released its earnings yesterday, is trading sharply higher today after the company beat sales estimates and also provided strong guidance.

Apple Did Not Provide a Hard Guidance

Since the onset of the COVID-19 pandemic, Apple has refrained from providing hard revenue guidance as it used to do before the pandemic. During the earnings release, it blamed “continued uncertainty around the world in the near term” for not providing the guidance.

It did however provide some color and said, “Overall, we believe our year-over-year revenue growth will accelerate during the September quarter compared to the June quarter despite approximately 600 basis points of negative year-over-year impact from foreign exchange.”

The company said that the negative impact of the supply chain outages in the current quarter would be lower than in the previous quarter. Incidentally, Apple lost less than $4 billion in sales in the fiscal third quarter due to supply chain issues, which was lower than the $4-$8 billion that it had predicted. It expects the gross margins to be between 41.5%-42.5% in the fiscal fourth quarter.

Apple is a cash-rich company and generates loads of cash every quarter. It generated operating cash flows of $22.9 billion in the June quarter, a new record for the company. It returned $28 billion in cash to stockholders in the quarter, mostly through buybacks. The company ended the quarter with net cash (total cash minus debt) of $60 billion. It eventually intends to reach a cash-neutral position which would mean more buybacks.

During the earnings call, Apple also faced a question over whether it is looking at acquisition given the fall in valuations of several companies. Apple’s CEO Tim Cook replied, “we never buy just to buy or buy just for revenue purposes. But we would buy something that is strategic for us.” He added that the company has made some small acquisitions but would not rule out anything for the future.

How’s Wall Street reacting to Apple’s Earnings?

Wall Street analysts have also reacted to Apple’s earnings. While Goldman Sachs reiterated the stock as neutral, Morgan Stanley reiterated the stock as overweight and advised investors to buy Apple stock. Morgan Stanley termed Apple as “resilient” and said that it remains its top pick while maintaining its $180 target price.

While Buffett has largely stayed away from tech stocks, Apple is Berkshire Hathaway’s largest holding. The conglomerate is sitting on billions of dollars of unrealized gains on AAPL stock. Buffett sees Apple as a consumer product company and has appreciated its products as well as its leadership.

In the first quarter of 2022, Warren Buffett bought the dip in Apple stock and invested $600 million into the iPhone maker. It was the first time since 2018 when the Oracle of Omaha bought Apple stock. He has sold some stocks over the period and admitted that selling those shares was a mistake.

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