Apple Inc. missed Wall Street’s expectations for the first time in years today as it lost out on more than $6 billion in expected revenue because of supply chain constraints.

The iPhone maker missed its revenue targets as iPhone sales came up short, while its profit was only in-line with analysts forecasts.

Even worse, Apple expects more supply chain woes to come. Chief Financial Officer Luca Maestri warned that revenue will be hit even harder in the current quarter. Apple’s stock fell almost 4% in after-hours trading on the news.

Despite the revenue miss, Apple’s overall sales still rose 29% year-over-year.

The company reported a profit before certain costs such as stock compensation of $1.24 per share on revenue of $83.4 billion. Wall Street had been looking for a $1.24 profit per share on larger revenue of $85 billion.

The results meant Apple failed to beat earnings estimates for the first time since April 2016, and it’s the first time since May 2017 it missed its revenue targets.

Apple Chief Executive Tim Cook (pictured) told analysts on a conference call the results would have been far better if the company had been able to secure more chips to power the hardware it sells.

“We estimate these constraints had around a $6 billion revenue dollar impact driven primarily by industrywide silicon shortages and COVID-related manufacturing disruptions,” he said.

Given the problems Apple has faced, the numbers from this quarter show that its business is still extremely healthy. It reported iPhone sales of $38.69 billion in the fourth quarter, up 47% from a year ago, albeit below Wall Street’s estimate of $41.7 billion.

Maestri pointed out that the iPhone revenue total was a September quarter record, with stronger-than-ever sales in both developed and undeveloped markets.

Revenue from Mac computer sales increased by 1.6%, to $9.18 billion, and iPad sales rose 21%, to $8.25 billion. Meanwhile the “Wearables, Home and Accessories” segment saw sales rise 12%, to $8.79 billion.

Services revenue rose 27%, to $18.28 billion. Maestri said the company now has more than 745 million paid subscriptions across all of its platforms and services, up by 160 million from this time last year and five times where they were five years ago.

Analyst Charles King of Pund-IT Inc. said he was most impressed with Apple’s services growth, saying its strategy of expanding its service offerings to reduce its reliance on hardware sales is paying off.  “Despite suffering from the same chip constraints affecting other PC and handset vendors, Apple was buoyed by the expansion of its other businesses, easing the impact of component shortages,” King said.

Forrester analyst Thomas Husson told SiliconANGLE the past quarter shows that Apple’s services business is now its major growth engine for revenue and profit.

“It is getting very close to becoming a $20 billion on a quarterly basis,” he said. “This strategic choice to move to generating recurring revenues and sticky services to a growing installed base was definitely the right one – and is definitely a way to reduce risk when the hardware business is potentially hit by the semiconductors’ crisis.”

Apple also reported a gross profit margin in the quarter of 42.2% of its total sales. Revenue for the full year rose 33%, to $366 billion, another record.

The company said it ended the quarter with $190.5 billion in cash and equivalents and marketable securities, down from $194 billion in the previous quarter. Meanwhile, its debt and commercial paper liabilities amounts to $125 billion, meaning Apple has a net cash position of $66 billion. The company is aiming to reach a “net zero” cash position over time, Maestri said.

Regarding Apple’s outlook for the first quarter, a time that is typically extremely busy for the company, Maestri said that given the “continued uncertainty around the world,” it was again declining to offer a forecast. Instead it offered what Maestri termed “directional assumptions” that estimate the impact from supply constraints will be even larger than in the quarter just gone.

Maestri said “revenue growth will decelerate from the September quarter,” though he also expects it to “remain strong” overall. He added that all of Apple’s product categories will see growth again during the quarter.

Cook added that he expects the December quarter will likely be the largest in terms of revenue in Apple’s history.

The expectations of revenue growth suggest Apple is seeing significant demand for its new iPhone 13 models, most likely greater than what it’s able to supply. The fourth quarter only included a few days of iPhone 13 sales, since it ended on Sept. 25, just days after it went on sale.

Asked for more detail on the supply chain impact this quarter, Cook said that though COVID-19-induced disruptions have eased, chip shortages will linger for some time.

“It is affecting pretty much most of our products currently,” Cook said. He later clarified the company is getting “lots more supply” for the current quarter, but that it expects a shortfall due to what it believes will be very high demand for its products. Cook told analysts he doesn’t want to try to forecast how the chip shortage will ultimately play out, but he added that Apple’s supply chain executives “are doing everything they can do” to improve supplies.

Husson said the supply chain risk is the greatest threat to Apple’s fortunes in the coming quarter, noting that with its great product lineup it will surely see high demand, due to both the strong seasonality of sales during the holiday season and the fact that it is competing with more and more brands and industries to fix these chip issues

But King told SiliconANGLE he was less certain about the level of demand Apple will see, despite Cook’s enthusiasm for the coming quarter. “The questions now are if Cook’s optimism about upcoming holiday sales is warranted and whether the momentum of device sales continues or abates as the pandemic recedes,” he said. “Overall, while Apple did very well under challenging circumstances, and a couple of interesting quarters are looming ahead.”

For the current quarter, Wall Street is forecasting Apple to report revenue of $119.42 billion and a profit of $1.86 per share.

Photo: The Climate Group