Apple Falls Short With Q4 2021 Earnings, Loses ‘World’s Most Valuable Company’ Title To Microsoft

NEWS: 11.03.21 – Apple, Inc. may have had a record-breaking fourth quarter, but beneath the surface, the company’s latest financial results paint an entirely different portrait.

Apple — which previously held the title of the “world’s most valuable company” — has been dethroned from its top seat by its rival, Microsoft Corp. The news comes on the heels of the Cupertino, California-based company’s recent earnings report delivered by its chief executive officer (CEO) and chief financial officer (CFO) via a conference call with investors on October 28.

According to Apple, for its fiscal fourth quarter ended September 25, 2021, the company posted a record revenue of $83.4 billion, up 29% year-over-year, and quarterly earnings per diluted share of $1.24, with income from Macs — as well as its services (e.g., Apple Music and Apple TV+) — reaching “new all-time highs” (the company’s own words).

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By The Numbers

In a press release issued ahead of the company’s conference call with investors, Apple CFO, Luca Maestri, said that in spite of continued uncertainty in the “macro environment,” Apple’s “record” fourth quarter results “capped off a remarkable fiscal year of strong double-digit growth,” during which the company set new revenue records in all of its geographic segments and product categories.

While Apple indicated that revenue from Macs and its services was up during the fourth quarter, MarketWatch reported that sales of the iPhone (once the company’s cash cow) and its wearables (e.g., AirPods and Apple Watch) grew slower than the company had originally anticipated. The media outlet broke down the numbers in its report and detailed the following earnings figures based on the Information provided in the conference call:

• Mac sales rose slightly to $9.2 billion from $9.0 billion (analysts had been modeling $9.1 billion); Apple reported $18.3 billion in revenue from its services category, up from $14.5 billion a year earlier (above analysts’ projections of $17.7 billion)
• Apple generated $38.9 billion in iPhone sales, up from $26.4 billion (well below analysts’ forecasts, which called for $41.2 billion); the company saw growth in its wearables category, which brought in revenue of $8.8 billion during the fourth quarter compared with $7.9 billion from a year earlier (falling short of the consensus, which modeled $9.4 billion)
• overall, Apple reported fiscal fourth quarter net income of $20.6 billion (or $1.24 a share)

MarketWatch reported that in the conference call, Apple CEO, Tim Cook, said that he estimated supply chain constraints have had a negative impact of $6 billion on the company’s revenue. According to the media outlet, Cook cited “industry-wide silicon shortages and COVID-related manufacturing disruptions” as the reason for the shortfall.

Cook also said in the conference call that, while Apple is feeling the supply chain challenges across “pretty much” all of its product lines and the company’s manufacturing disruptions have largely improved since then, he feels “very, very good about where demand is right now,” noting that it has been very “robust.”

Beneath The ‘Surface’

Underneath it all, however, was the report from Business Insider that Apple’s financial results had underwhelmed projections set by Wall Street analysts. With the Cupertino, California-based company’s fiscal fourth quarter sales of $83.4 billion falling below analysts’ expectations of $85 billion, its stock dropped as much as 4% to $146.41 per share following the trading session on October 29 (a day after its earnings were reported to investors). According to the media outlet, this was the first time that Apple has missed the mark for its quarterly revenue target since 2018.

“What is clear is that Apple’s short term issues are not driven by a lack of demand,” said Victoria Scholar, head of investment at Interactive Investor (in a research note issued last Friday and included in the report from Business Insider).

Meanwhile, as reported by Business Insider, Microsoft surpassed Apple’s $2.43 trillion market capitalization after its own reached $2.46 trillion, making the Windows maker the most valuable company (a crown that was previously held by its rival, Apple, since August 2020). The title exchanged hands as the Redmond, Washington-based company’s stock rose 1% to $327.50 per share during last Friday’s trading session.

Business Insider noted in its report that the last time Microsoft was more valuable than Apple was in May 2020.

Supply vs. Demand

Painting a clearer portrait of Apple’s latest financial results is an analysis by Jason Snelll of Macworld, formerly the lead editor of the magazine who now regularly writes the column, “More Color” for the publication. According to Snell, the most interesting detail that came out of Apple’s finances was this: how does a company that’s reporting record earnings and repeatedly citing “robust” demand for its products put a chill into the hearts of Wall Street types?

Noting that Apple has shown very little fiscal fourth quarter growth lately — making its latest financial results that much more impressive — Snell pointed out that the reason why Apple’s record quarter has everyone worried centers around the fact that supply chain issues have cost the company $6 billion in revenue and the next quarterly earnings period (Q1 2022) will be worse than this one, adding that it will get even worse before it gets any better.

“Six. Billion. Dollars. That’s cash that Apple’s customers slapped on the table in the last three months, saying, ‘shut up and take my money’ and were denied,” wrote Snell. “Because Apple just didn’t have the products available to sell.”

“To translate that, During the holiday quarter, Apple will leave even more than $6 billion on the table, in part because even though its supply is growing rapidly, demand for Apple products spikes this time of year. And increased supply just won’t be able to catch up to increased demand. In fact, it will slip behind, at least somewhat.”

Despite that limitation, however, Snell reported that Apple still expects the holiday quarter to break the company’s all-time record for revenue, which was set last year with $111.4 billion (for the fiscal first quarter ended December 26, 2020).