Throughout the pandemic, Apple Inc.’s biggest challenge has been maintaining an adequate supply of its devices, but as the company heads toward the launch of a new iPhone, could that change the equation?
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benefited from the resilience of demand in the early years of the COVID-19 crisis, as governments pumped in stimulus funds and consumers sought out new devices that would better enable them to work and study from home. However, as inflation continues to hit consumers, some analysts are concerned about a possible cooling in demand for smartphones.
Investors will get a sense of how inflationary dynamics are affecting Apple when the company reports fiscal third-quarter results on Thursday afternoon. While the company may shed light on how evolving consumer spending trends manifested in its June quarter results, Wall Street will be especially focused on how Apple expects smartphone buying patterns to play out in the coming cycle. iPhone, which should start this fall. .
“As we look ahead to September, eyes are on [foreign-exchange] impact and any signs of slowing demand ahead of the iPhone14 launch,” Morgan Stanley’s Katy Huberty wrote.
About a month ago, his colleague Erik Woodring at Morgan Stanley wrote about “deteriorated” data points regarding low- and mid-range consumer spending in general, while noting that “the risks of a pullback even in the high-end consumer are rising.”
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Woodring saw Apple as better positioned than other consumer hardware companies to deal with a potential slowdown, though he said “it would be short-sighted to believe that Apple is completely immune to a weaker consumer.”
JPMorgan’s Samik Chatterjee wrote that long investors “expect…a material cut in estimates to account for headwinds from receding consumer spending to lower the bar ahead of the iPhone 14 launch.” .
Taking a look at Apple’s own expectations has become more difficult since the company declined to offer traditional financial forecasts during the COVID-19 pandemic. Assuming the company adheres to this pattern, investors will have to glean trends from the company’s qualitative comments, as well as any details it provides about how performance might stack up relative to recent quarters.
“Looking ahead to the September quarter, we’re not sure what guidance management will give, but we do expect some conservatism given the macro backdrop despite recent hardware strength,” Barclays analyst Tim Long wrote.
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Any kind of outlook will be of particular interest to investors this time, as it could also indicate whether the smartphone giant expects its new phones to launch towards the end of the September quarter or early December quarter, a piece of information that is Useful. for forecast.
As analysts begin to think about the potential inflationary effects on demand for the iPhone 14, it’s worth noting that just three months ago, Wall Street was very focused on supply. Apple warned in its latest earnings call that it expected to see more pronounced supply pressures in the June quarter than in March, due in part to temporary factory closures in China.
“Although hardware sales had to deal with China COVID-19 and supply constraints during the June quarter, we believe the company’s previously provided assumptions and consensus views appear conservative,” CFRA’s Angelo Zino wrote. “The reopening of China provides a nice boost for the September quarter from both a supply and demand perspective.”
what to expect
Income: Analysts tracked by FactSet expect Apple to post $82.7 billion in revenue, up from $81.4 billion a year earlier. According to Estimize, which sources projections from hedge funds, academics and others, the median estimate is $84 billion in revenue.
Analysts anticipate revenue growth across the board despite mixed expectations by category, with increases projected in only two revenue lines: services and Mac. FactSet consensus calls for services revenue to rise to $19.8 billion from $17.5 billion. past year. It also models $8.7 billion in Mac revenue, up from $8.2 billion in the prior year period, despite Mixed messages on Apple from quarterly shipping reports on personal computers.
Consensus forecasts call for $38.6 billion in iPhone revenue, up from $39.6 billion a year earlier; $6.9 billion in iPad revenue, down from $7.4 billion a year earlier; and $8.7 billion in revenue from wearables, home and accessories, down from $8.8 billion.
Profits: Analysts tracked by FactSet are modeling $1.16 in earnings per share, while those surveyed by Estimize are looking for $1.25. The company posted $1.30 per share in earnings in the fiscal third quarter of last year. If Apple posts EPS below $1.30, that would mark the company’s first earnings decline since the September 2020 quarter.
stock movement: Apple shares have fallen after six of the company’s last seven earnings reports. The stock is down 14% year to date according to the Dow Jones Industrial Average DJIA,
– which has Apple as a component – has lost 12%.
Of the 42 analysts tracked by FactSet covering Apple stock, 32 have buy ratings, nine have hold ratings, and one has a sell rating, with an average price target of $182.53.
What the analysts say
Technology companies, including International Business Machines Corporation.
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have seen considerable negative impacts of exchange ratesand the strength of the US dollar could also cloud the performance of Apple’s iPhone business, according to an analyst.
“Despite the strength of the iPhone and Mac units relative to our estimates, incremental FX headwinds are likely to temper output’s upside,” wrote UBS analyst David Vogt. He believes revenue growth for the iPhone and Mac businesses could approach $4 billion in constant currency, but said the dollar’s strength could offset about half.
See also: Microsoft joins the chorus of tech companies warning of the effects of a strong dollar
Evercore ISI’s Amit Daryanani pointed to Chinese government data points that suggested a return to growth for China’s smartphone market overall, and especially strong growth for Apple. You will be looking for more information on the performance drivers in the region.
“Strong growth from China should position Apple well to offer some upside against relatively low expectations, but investors are likely to remain cautious about the possibility of weak September guidance,” Daryanani wrote. “The key question will be: Is this growth more driven by pent-up demand that can be sustained through the September quarter or did the strong June dent most of the pent-up demand?”
Wells Fargo’s Aaron Rakers is interested in the state of the Mac business after sales data from outside IDC researchers estimated a 23% drop in Mac shipments for the quarter.
See more: The PC industry suffered its worst decline in years, but how bad it is depends on Apple
The data point makes him question “whether Apple may have had worsening supply constraints during the quarter that inhibited shipments to the channel, or whether supply improved but the company decided to reduce inventories given macro concerns.”