Apple (AAPL -0.23%) reported fiscal 2022 first-quarter results last week that beat analyst expectations. The Cupertino, California, company boasted record revenue and profits in Q1 fueled by continued customer enthusiasm for its products and services alike.
Impressively, Apple managed this feat while global supply chain bottlenecks constrained it from producing as much as consumers were willing to purchase. Let's look closer at Apple's Q1 results (for the quarter ending Dec. 25, 2021) and see if they reveal more about how Apple accomplished this as well as where it might be going.
Supply chain shortages constrained Apple's sales by at least $6 billion in Q1. Image source: Getty Images.
Apple's impressive Q1 results rewrite records in several categories
Starting with revenue, Apple reported an all-time record of $124 billion in Q1, up 11% from the same quarter the year before. Analysts on Wall Street were expecting it to report revenue of $118 billion. The $6 billion outperformance involved outperformance by nearly all its product and service categories (save for the iPad). The decrease in year-over-year sales in the iPad was not because customers were not willing to buy. Instead, the iPad is the product line getting hit the hardest by supply shortages.
In the quarter ended in September, Apple management said the company experienced a $6 billion headwind from supply chain shortages. Management also noted then that Q1 would see even stronger headwinds because of supply chain issues. While management did not quantify the impact of supply shortages while discussing Q1 results on the conference call, it did say that they were as expected. It follows then that Apple reported $124 billion in sales in Q1, but it could have been at least $6 billion higher if it had the supply to meet customer demand.
The voracious consumer appetite for Apple's products and services comes as billions of people are spending more time at home. Many are now working and learning from home, whereas before the outbreak, folks worked at offices and learned on campuses. Importantly, offices and school campuses already had workstations with the required electronics set up. The remote working and learning boom created a surge in demand for electronic devices that folks can use to work and connect to the office and school.
And one benefit of supply shortages is that discounts and promotions are not necessary. If you can barely meet existing customer demand at current prices, there is no need to lower prices to boost sales. As a result, Apple's profit margins boomed in Q1. Here's CFO Luca Maestri disclosing profit margins in the Q1 conference call: "Company gross margin was 43.8%, up 160 basis points from last quarter due to volume leverage and favorable mix, partially offset by higher cost structures."
To put that company gross margin of 43.8% into context, Apple has only once reported a better gross profit margin in the past decade, and that was in 2012 at 43.9%. Admittedly, this is taking a quarterly profit margin and comparing it to annual figures, which can differ due to seasonality, but it goes to highlight that not only is Apple hitting record sales, it is doing so at high margins.
What this could mean for Apple shareholders
Apple's stock price was up 5% on the day following the release of fiscal 2022 Q1 earnings. Investors were impressed with its ability to grapple with supply chain shortages and deliver double-digit revenue growth. Making the increase more impressive is that it follows 21% growth from the same quarter last year.
Apple continues to innovate and create products and services consumers love. The company has done that for several decades now, which has propelled it to a valuation of almost $2.8 trillion. Despite the astronomical value, Apple keeps justifying its price by delivering exceptional sales and earnings growth. The company is giving shareholders little reason to doubt it can continue this momentum for a long time still.
