Apple and Amazon Face Challenges in Q2 2024 Earnings Reports

China takes bite out of Apple's earnings as Amazon numbers weaken

Apple and Amazon have reported their June-quarter earnings, continuing to fuel market volatility on Wall Street. Apple surpassed market expectations and returned to growth after experiencing a sales contraction in the previous quarter. In contrast, Amazon shares slumped more than 6% in after-hours trading due to missing revenue estimates and providing a disappointing outlook for the current quarter. However, overall sentiment soured as both earnings results revealed softening spending and competition from Chinese rivals impacting their profitability. Additionally, the massive AI investments by these tech giants sparked concerns about their returns. Apple reported revenue of $85.78bn (€85.78bn), up 5% from a year earlier, topping analysts' estimated $84.53bn. Apple Services remained the most profitable segment with a steady growth momentum, reporting revenue of $24.21bn (€22.36bn), an increase of 14% from a year ago. Services sales, which include revenue from Apple Store, Apple Pay, Apple TV+, Apple Music, Apple Arcade, and iCloud, contributed 28% of the overall revenue, up from 26% from the March quarter. Apple expects it will keep a similar pace of overall growth in the current quarter, as will the service segment. Notably, iPad's sales jumped from several consecutive contraction periods, thanks to the long-awaited release of new models. The segment revenue increased 24% to $7.16bn (€6.61bn), compared with a 17% drop in the previous quarter. However, the biggest revenue contributor, iPhone sales dipped 1% from a year ago, primarily due to continued decline in China. Apple has lost more market share in the country due to fierce competition from local rivals and weakened spending power. Sales in China fell 6.5%, far more than analysts expected of a drop of 2.6%. For the first time, Apple dropped out of the top five China smartphone sellers, while the local rivals Vivo and Xiaomi both recorded double-digit growth in the second quarter. According to research firm International Data Corp, Apple's market share in China shrank to 14% in the second quarter, down 2% from a year ago. Apple Intelligence was also in the spotlight, with expectations that the adoption of artificial intelligence would boost further sales of Apple's new products. CEO Tim Cook said:" During the quarter, we were excited to announce incredible updates to our software platforms at our Worldwide Developers Conference, including Apple Intelligence, a breakthrough personal intelligence system that puts powerful, private generative AI models at the core of iPhone, iPad, and Mac. We very much look forward to sharing these tools with our users, and we continue to invest significantly in the innovations that will enrich our customers' lives, while leading with the values that drive our work." Amazon's second-quarter revenue missed market expectations due to weakened online sales and disappointing advertising income. The overall revenue hit $148bn (€136.7 bn), up 10% from a year earlier but missing the estimated $148.56bn. The most profitable segment, advertising sales, rose 20% year-on-year to $12.77bn (€11.8bn), slightly lower than estimates. On a positive note, the core business, Amazon Web Services (AWS) exceeded market expectations, with revenue of $26.3bn (€24.3bn), up 19% from a year earlier. The growth rate has accelerated from 17% in the previous quarter. CEO Andy Jassy said: "We're continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth." However, Amazon plans to continue pouring money into the AI infrastructure, which concerns investors. The e-commerce reported capital expenditure of some $30.5bn (€28.2bn) on AI development such as data centres. Amazon's online sales increased only 5% from a year earlier, a notable slowdown from 7% in the first quarter. It may have been impacted by Chinese rivals Temu and Shein, which have aggressively developed into overseas markets, offering discounted products. Amid softening spending power, the company saw consumers opting for cheaper products, leading to lower average selling price. The company forecasts a flat revenue growth for the September quarter, which is also lower than most analysts' expectations. CFD Olsavsky indicated that big events like the Paris Olympics might disrupt normal purchasing patterns.

Apple surprises in mixed results for 'magnificent seven' tech giants

The world's biggest company's sales exceed expectations, particularly for the iPhone as some customers hold off with an upgrade imminent, while Amazon fails to impress despite growth. At the end of a mixed fortnight's worth of trading updates from the US tech giants, it was down to the biggest of them - Apple - to lift investor spirits. The $3.35trn (£2.63trn) giant, established again in June as the world's biggest company after five months during which Microsoft was bigger, reported sales of $85.78bn (£67.32bn) for the three months to the end of June. That was up by just under 5% on the same period last year and was also ahead of the $84.53bn (£66.34bn) Wall Street had been expecting. Money latest - follow for updates Crucially, iPhone sales, which make up almost half of Apple's revenues, also came in ahead of expectations, at $39.3bn (£30.84bn). That was down by 0.9% on the same period last year, but better than the 2.2% decline that had been expected. That will be seen as quite a resilient showing - it was certainly better than Apple's own management had expected - in view of the fact that Apple is about to launch the iPhone 16 in September and so some customers will have been holding back from replacing their existing device. The next version is expected to contain more new features supported by artificial intelligence. Dan Ives, managing director at Wedbush Securities and one of Wall Street's best-known tech watchers, has estimated that some 270 million iPhone users have not upgraded their device in the last four years - potentially making this the most important iPhone launch in many years. Among other stand-outs in the latest numbers was the performance of Apple's services business, which includes its app store, Apple Pay, Apple Music, iCloud and the Apple TV+ streaming service, which achieved sales of $24.2bn during the quarter - some 15% up on the same period last year. 'Consistent growth' Antonio Ernesto Di Giacomo, senior market analyst at the trading platform XS.com, said: "This segment includes services...which have shown consistent growth and have become essential for the company's revenue diversification. "The increase in this area reflects Apple's strategy to expand its service ecosystem and build customer loyalty with an integrated and varied offering." Another surprise in the numbers was how well the iPad - sometimes unfairly seen as something of a Cinderella product compared with the flagship iPhone - fared during the quarter. Sales rose by 24%, to $7.2bn, following new product launches in May. Blemish If there was a blemish in the results, it was probably in Greater China, Apple's third-largest market after the Americas and Europe. Sales there came in at $14.72bn, down 6% on the same period a year ago, reflecting tough competition from local rival Huawei, whose foldable smartphones and devices have been lapped up by Chinese consumers. Apple has been forced into offering price cuts in the country to compete with its cheaper rival. If Apple brought a smile to the faces of tech investors, Amazon did the opposite, with its sales for the quarter coming in below Wall Street expectations for the first time since October 2022. Shares of Amazon fell by 8% in after-hours trading after sales for the three months to the end of June came in at $147.98bn - which was up 10% on the same period a year ago but $580m lower than Wall Street had been expecting. Viewed in isolation, the numbers were not too bad, but what appears to have hurt Amazon was that expectations were very high - with the shares having risen by 20% so far this year going into the results. Accordingly, even though sales at the company's closely-watched cloud division, Amazon Web Services (AWS), were up 19% to $26.3bn, this was seen as a somewhat lacklustre display compared with rivals. Slowdown Microsoft's Azure platform, for example, reported 29% growth during the quarter on Tuesday evening - although, at the time, that had been seen as disappointing as it represented a slowdown from the 31% growth seen during the previous quarter. Meanwhile, although sales in Amazon's core e-commerce business were up the company's largest segment, online stores, rose 5% to $55.4bn, this was also seen as somewhat disappointing. Investors fear the business is facing intensified competition from Chinese competitors such as Shein and Temu. Also disappointing was the guidance for the next quarter which, again, came in shy of expectations. AI investment jitters The crux of the problem for companies like Amazon is that, while they are now investing heavily in AI, investors are becoming increasingly worried about the sums being deployed and focusing increasingly on the returns being generated by that investment in a way they were not just a few months ago. That was also at the heart of the huge after-hours sell-off in Intel - which saw the chipmaker's shares fall by 21.5%. Pat Gelsinger, the chief executive, announced plans to save $10bn through a variety of measures, including scrapping the company's dividend, slashing investment and cutting Intel's global workforce by 15%, around 17,500 jobs. Rivals Intel has faced tough comparisons with rivals including Nvidia, which is seen as leading the way in AI chips and with Advanced Micro Devices, to which it has been losing market share in traditional chips. It all completed a rather mixed reporting season for the tech giants. Of the so-called "magnificent seven", Apple, Alphabet and Meta platforms surprised to the upside while Microsoft, Amazon and Tesla proved slightly disappointing.