Apple Loses Steam, but iPhone Demand Remains Strong — Is the Stock a Buy?

Apple (AAPL 0.36%) beat Wall Street expectations for its third quarter of fiscal 2022 (the three months ended on June 25). Revenue was $82.96 billion (versus $82.97 billion estimated, no worries fretting over a $10 million miss) and earnings per share were $1.20 (beating the $1.16 consensus among analysts).

Apple has been a bulwark this year. Shares have rallied in recent months and are now down just 13% so far in 2022 — not bad for a bear market. Other tech giants have said in recent weeks that consumer electronics (smartphones included) are headed for a big cool-off in the second half of this year. This appears to be impacting Apple in some areas too, but the flagship iPhone segment is bucking the trend and holding strong. Is Apple stock and its premium price tag a buy at this juncture?

Overcoming multiple headwinds in the spring

First, let’s acknowledge that Apple’s overall results were impressive considering the issues it’s been facing around the world. Supply chains are a mess (particularly in regard to the chip shortage) and are constraining the supply of some devices.

A strong US dollar is also lowering the value of international revenue, Apple isn’t doing business in Russia anymore, and ongoing COVID-19 lockdowns (like in Asia) are reducing demand among households for discretionary products. Given all this, the overall year-over-year revenue rise of 2% is nothing to get too upset about. Earnings per share fell 7.7% year over year as profit margins took a small hit.

Apple acknowledged things could be better, confirming comments from other tech companies about weakening consumer demand for some product types and ongoing supply chain wonkiness impacting the ability to deliver a finished product where consumer demand is still strong. iPad, Watch, and Mac sales in the last quarter bear this out.

Apple Product Segment

Q3 Fiscal 2022 Revenue

YOY Increase (Decrease)


$40.7 billion



$7.38 billion



$7.22 billion


Wearables, men, and accessories

$8.08 billion



$19.6 billion


Data source: Apple. YOY = year over year.

The iPhone is holding strong, though. In fact, just a day prior to Apple’s report, mobile chip giant Qualcomm (QCOM -4.54%) — which is a top supplier for Android phones — said it expects full-year smartphone unit sales to now decrease by a mid-single-digit percentage compared to 2021. As far as Apple CEO Tim Cook and the company are concerned, there’s no observable impact from a weak consumer on the iPhone. The upgrade to 5G-capable phones isn’t the strong tailwind it was a year or two ago, but all indications are that global 5G iPhone uptake is still going just fine.

In particular, the iPhone is doing well in emerging markets where there is very little Apple presence currently. And although some device sales were weak last quarter, Apple reported its total user base worldwide rose, which helps drive the continued expansion of its higher-margin “services” business.

A slowdown may linger, but focus on the long term

Overall, Q3 was a good one for Apple shareholders. The outlook for the final months of the company’s 2022 fiscal year wasn’t particularly exciting but did contain some positive news. Cook and management see further headwinds from the strong US dollar versus foreign currencies. However, revenue is still expected to accelerate compared to the just-finished quarter.

Gross margins could be down to a range of 41.5% to 42.5% (compared to 43.3% just reported), but that isn’t the end of the world, either. Apple sees value in its own stock, so it continues to repurchase shares ($65 billion during the three months ended in June alone). This ongoing activity should help mitigate lower profit margins and resulting earnings-per-share pressure.

After the report, Apple stock trades for just shy of 24 times trailing-12-month free cash flow. It’s a premium-priced stock, especially for a company that isn’t growing much these days. But Apple is a well-oiled machine that can continue to churn out solid financial results even in difficult times. If you’re looking for fast-growing stocks, this one isn’t it. But if you want consistent returns over time, Apple stock remains a great company to build a portfolio around.

Nicholas Rossolillo and his clients have positions in Apple and Qualcomm. The Motley Fool has positions in and recommends Apple and Qualcomm. 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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