The global smartphone market has fallen into a downward spiral. Apple beat the odds.

The bear market and the accompanying macroeconomic uncertainty have taken their toll on even the most resilient of tech companies. One such example is an Apple (AAPL 0.04%). Despite delivering all records over time or quarterly in each of the previous four quarters, the company has been hit hard by economic headwinds that have persisted over the past year. Fearing that the iPhone maker will be outperformed by the high inflation and high interest rates that have become headline news, investors have pushed the technology stock down 25% since it peaked early last year.

As if to confirm investor fears, global smartphone shipments suffered their worst performance in more than 10 years. But the one bright spot in the data was the iPhone’s continued strength.

iPhone 14 Pro and iPhone 14 Pro Max stacked to show the size difference.

Image source: Apple.

an apple a day

Worldwide smartphone shipments fell 17% year over year in the fourth quarter, the worst market performance in a decade, according to data compiled by market analysis firm Canalys. This year capped off an 11% drop in shipments, reflecting fewer than 1.2 billion smartphones sold, the lowest total in more than 10 years.

Apple was bucking this trend. Not only did the company increase its share at the expense of competitors, but it recorded the highest quarterly market share Startby 25%. This was enough to steal the crown back from Samsung, which saw its share shrink to 20%.

Economic headwinds

“Smartphone vendors struggled in a difficult macroeconomic environment throughout 2022,” wrote Canalys research analyst Runar Bjørhovde. Moreover, “the fourth quarter marked the worst annual performance and fourth quarter in a decade.” The report noted that dealers were “extremely cautious” about conducting additional inventory, which helped fuel a dismal performance in the fourth quarter. The holiday season was marked by industry-wide sales and incentives, which helped reduce already high inventory levels.

One of the highlights was the weakness that began to crept into higher-end products, following a slowdown in demand for low- and mid-range products, which had softened in previous quarters.

The pressure on smartphone sales is expected to continue throughout 2023. The market expects steady to marginal growth over the next year, according to Canalys, as economic headwinds persist. “Although inflationary pressures will gradually ease, the effects of rising interest rates, economic slowdown and an increasingly faltering job market will limit the market potential,” added Lu Xuanqiu, Canalys Research Analyst.

Broken record

While Apple has reported record growth in each of the previous four quarters, a deeper look shows that the macroeconomic situation has taken its toll. In the first quarter of fiscal 2022, revenue grew 11% year-over-year, which was the highest point for the year. During the second, third, and fourth quarters, sales grew 9%, 2%, and 8%, respectively.

This is not to downplay the company’s strong performance in the face of headwinds, but rather to point out that even Apple could eventually succumb to a weak consumer environment. CEO Tim Cook noted that in the fourth quarter, Apple’s revenue grew by double digits outside the US, weighed down by the impact of the strong dollar. These headwinds are expected to continue into next year.

Inflation remains historically high and interest rates are expected to rise even higher in 2023. Even better-off consumers are starting to be more careful with their spending.

Investors should keep a close eye on what Tim Cook and the company say about the most recent completed quarter and what it reveals about future demand. Apple has not provided guidance since the start of the pandemic, due to the attendant uncertainty.

Apple is set to report earnings for the first quarter of fiscal 2023 — which includes the critical holiday sales period — on Thursday, February 2, after the market closes.

The results should give us some indication as to whether Apple will be able to hang on to its hard-won market share gains.

Danny Vena has positions at Apple. The Motley Fool has and recommends positions at Apple. The Motley Fool recommends the following options: March 2023 long calls of $120 on Apple and March 2023 short calls of $130 on Apple. The Motley Fool has a disclosure policy.

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