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 the equation to toggle ?
AppleAAPL,
benefited from resilient demand in the first two years of the COVID-19 crisis, as governments pumped in stimulus funds and consumers sought new devices that would allow them to better work and study from home . However, with inflation continuing 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 impacting Apple when the company releases its fiscal third quarter results on Thursday afternoon. While the company may shed some light on changing consumer spending trends in the June quarter results, Wall Street will be particularly focused on how Apple expects smartphone buying patterns to fare. unfold in the next cycle of the iPhone, which should start this fall. .
“As we look to September, our eyes are on [foreign-exchange] impact and any sign of slowing demand ahead of iPhone14 launch,” wrote Katy Huberty of Morgan Stanley.
About a month ago, his colleague Erik Woodring of Morgan Stanley spoke about the “deterioration” in data points for low-end and mid-range consumer spending more generally, while noting that “the risks of a pullback, even among the high-end consumer, are increasing.”
Read: Amex shrugs off macro fears, says ‘premium’ consumers keep spending
Woodring viewed Apple as better positioned than other consumer hardware companies to weather a possible downturn, although he said that “it would be misguided to believe that Apple is completely immune to a consumer weaker”.
JPMorgan’s Samik Chatterjee wrote that long-only investors are “hoping…a significant reduction in estimates to account for headwinds from falling consumer spending to lower the bar ahead of the iPhone 14 launch.”
Getting insight into 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 sticks to this model, investors will need to infer trends from the company’s qualitative comments, as well as any details it provides on how performance might stack up compared to recent quarters. .
“As for Sep-Q, we don’t know what guidance management will give, but we expect some conservatism given the macro backdrop despite recent material strength,” Barclays analyst Tim Long wrote. .
Don’t Miss: Big Tech Earnings Are Set to Determine Market Direction
Any kind of outlook will be of particular interest to investors this time around, as it could also indicate whether the smartphone giant expects its new phones to launch towards the end of the September quarter or the start of the December quarter, a useful data point. for the forecast.
As analysts begin to ponder the potential inflationary effects on iPhone 14 demand, it’s worth noting that just three months ago Wall Street was heavily focused on supply. Apple warned on its latest earnings call that it expects to see greater supply pressures in the June quarter than in the March quarter, in part due to temporary factory shutdowns in China.
“While hardware sales struggled with COVID-19 in China and supply constraints in the June quarter, we believe the company’s previously provided assumptions and consensus views appear conservative,” wrote CFRA’s Angelo Zino. “China’s reopening gives a good boost to Sep-Q from both a supply and demand perspective.”
What to expect
Revenue: Analysts tracked by FactSet expect Apple to post revenue of $82.7 billion, up from $81.4 billion a year earlier. According to Estimize, which relies on projections from hedge funds, academics and others, the average estimate is $84 billion in revenue.
Analysts expect revenue growth overall despite mixed expectations by category, with increases expected in just two revenue lines: services and Macs. The FactSet consensus calls for an increase in services revenue to $19.8 billion from $17.5 billion a year earlier. It also models $8.7 billion in Mac revenue, down from $8.2 billion a year earlier, despite mixed messages about Apple from quarterly personal computer shipment reports.
Consensus forecast calls for $38.6 billion in iPhone revenue, up from $39.6 billion a year earlier; $6.9 billion in iPad revenue, up from $7.4 billion a year earlier; and $8.7 billion in revenue for apparel, home and accessories, down from $8.8 billion.
Earnings: Analysts tracked by FactSet are modeling $1.16 in earnings per share, while those polled by Estimize are looking for $1.25. The company posted earnings of $1.30 per share in the third quarter last year. If Apple posts EPS below $1.30, it would mark the company’s first earnings decline since the September 2020 quarter.
Movement of stock: Apple shares have fallen after six of the company’s last seven earnings reports. The stock has fallen 14% so far this year as the Dow Jones Industrial Average DJIA,
— which counts Apple as a component — lost 12%.
Of the 42 analysts tracked by FactSet who cover Apple shares, 32 have buy ratings, nine have hold ratings and one has a sell rating, with an average price target of $182.53.
What analysts say
Technology companies, including International Business Machines Corp. IBM,
and Microsoft Corp. MSFT,
have seen significant negative currency impacts, and the strength of the US dollar could also cloud the performance of Apple’s iPhone business, an analyst said.
“Despite the strength of the iPhone and Mac units relative to our estimates, incremental headwinds from FX are likely to temper the upside of the product,” wrote UBS analyst David Vogt. He thinks the rise in revenue for the iPhone and Mac businesses could approach $4 billion in constant currency, but said the strong dollar could offset about half of that.
See also: Microsoft joins chorus of tech companies warning of effects of strong dollar
Evercore ISI’s Amit Daryanani pointed to Chinese government data points that suggested a return to growth for the Chinese smartphone market in general, and particularly strong growth for Apple. He will seek more information on performance drivers in the area.
“Strong growth out of China should position Apple well to deliver some upside at relatively low expectations, but investors are likely to remain cautious about the potential for a weak September guide,” Daryanani wrote. “The key question will be, is this growth driven more by pent-up demand that can sustain through the September quarter or has the strength in June cleared most of the backlog demand ?”
Wells Fargo’s Aaron Rakers takes a look at the state of the Mac business after sales data from third-party researchers at IDC estimated a 23% drop in Mac shipments for the quarter.
See more: The PC industry has suffered the worst decline in years, but its severity depends on Apple
The data point leads him to wonder “whether Apple may have had supply constraints worsening in the quarter, preventing in-channel shipments, or whether supply has improved, but the company decided to reduce inventories in light of macroeconomic concerns”.