Apple has been concerned about iPhone supply, but this could swing by demand

Throughout the pandemic, Apple Inc.’s biggest challenge has been. It is maintaining an adequate supply of its devices, but with the company heading towards launching a new iPhone, could the equation be reversed?

Apple AAPL,
Benefiting from elastic demand in the first two years of the COVID-19 crisis, as governments poured in stimulus money and consumers searched for new devices that would better enable them to work and study from home. With inflation continuing to criticize consumers, some analysts are concerned about a possible drop in demand for smartphones.

Investors will learn about how inflation dynamics will affect Apple when the company releases its third-quarter financial results Thursday afternoon. While the company may highlight how evolving consumer spending trends play out in its June quarter results, Wall Street will be particularly focused on how Apple expects smartphone buying patterns to emerge in the upcoming iPhone cycle, which should begin this fall. .

“As we look forward to September, all eyes are on [foreign-exchange] “The impact and any signs of slowing demand ahead of the launch of iPhone14,” Morgan Stanley’s Katie Huberty wrote.

About a month ago, her colleague Eric Wooding at Morgan Stanley wrote about the “deterioration” of data points for low and average consumer spending in general, noting that “downside risks even for the high-end consumer are rising.”

Read: Amex shrugs off macro concerns, says ‘premium’ consumers are still spending

Woodring saw Apple in a better position than other consumer hardware companies to deal with a potential slowdown, though he said, “It would be shortsighted to think that Apple is completely immune to a weaker consumer.”

JPMorgan’s Samik Chatterjee writes that longtime investors are only “hoping … a material downgrade in estimates to account for headwinds from a decline in consumer spending to cut the bar toward the iPhone 14 launch.”

Getting a glimpse of Apple’s own forecasts has become more difficult since the company declined to provide traditional financial forecasts during the COVID-19 pandemic. Assuming the company sticks to this pattern, investors will be left to elicit trends from the company’s qualitative feedback, as well as any details it provides on how performance has stacked up compared to recent quarters.

“Given September-Q, we’re not sure what direction management will give, but we expect some caution given the overall background despite the strength of recent hardware,” Barclays analyst Tim Long wrote.

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Any kind of forecast will be of particular interest to investors this time around because it could also indicate whether the smartphone giant expects to release its new phones at the end of the September quarter or the beginning of the December quarter, which is a useful data point for forecasting.

When analysts began to consider the potential inflationary effects on demand for the iPhone 14, it is worth noting that just three months ago, Wall Street was very focused on supply. Apple warned on its latest earnings call that it expects to see more severe supply pressures in the June quarter than in the first quarter of March, in part due to temporary factory closures in China.

CFRA’s Angelo Zino writes: “Although hardware sales should address China’s COVID-19 and supply restrictions during the June quarter, we previously believed the assumptions made by the company and collective opinions appeared conservative.” “China reopening provides good momentum for September in Q from a supply and demand perspective.”

what are you expecting

he won: Analysts tracked by FactSet expect Apple to generate $82.7 billion in revenue, compared to $81.4 billion a year earlier. According to Estimize, which aggregates forecast sources from hedge funds, academics and others, the average estimate is $84 billion in revenue.

Analysts expect revenue growth overall despite mixed expectations on a category basis, with increases expected in just two revenue lines: Services and Macs. The FactSet consensus calls for service revenue to increase to $19.8 billion from $17.5 billion in the previous year. It also represented $8.7 billion in Mac revenue, up from $8.2 billion in the same period a year earlier, despite mixed messages on Apple from quarterly shipping reports on PC.

Consensus forecasts show $38.6 billion in iPhone revenue, down from $39.6 billion in the previous year; $6.9 billion in iPad revenue, down from $7.4 billion a year earlier; and $8.7 billion in wearable, home, and accessories revenue, down from $8.8 billion.

earnings: Analysts whose FactSet model tracks $1.16 in earnings per share, while those surveyed by Estimize are looking for $1.25. The company reported $1.30 per share of earnings in the third quarter of last fiscal year. If Apple reports earnings per share below $1.30, it would be the first decline in the company’s earnings since the September quarter of 2020.

stock movement: Apple shares have fallen after six of the company’s past seven earnings reports. The stock is down 14% so far this year as the Dow Jones Industrial Average DJIA,
– which Apple considers as a component – it lost 12%.

Of the 42 analysts tracked by FactSet that cover Apple stocks, 32 have a buy rating, nine have a hold rating, and one has a sell rating, with an average target price of $182.53.

What the analysts say

Technology companies including International Business Machines Corp. IBM,
and Microsoft Corp. MSFT,
It has seen significant negative effects from exchange rates, and a strong US dollar could overshadow Apple’s iPhone business performance as well, according to an analyst.

“Despite the strength in iPhone and Mac units relative to our estimates, increased exchange headwinds are likely to dampen product appreciation,” wrote UBS analyst David Vogt. He thinks the iPhone and Mac business revenue rise could approach $4 billion in constant currency, but said a stronger dollar could offset about half of that.

See also: Microsoft joins group of tech companies that warn of the effects of a stronger dollar

Evercore ISI’s Amit Daryanani has flagged Chinese government data points that indicate a re-growth of the smartphone market in China in general, and particularly sharp growth for Apple. He will look for more information on the performance drivers in the region.

“Strong growth from China should put Apple in a good position to provide some upside to the relatively low outlook, but investors are likely to remain cautious about the possibility of weak evidence for September,” Darianani wrote. “The key question will be: Is this growth driven more by pent-up demand that could continue through September or the third quarter of June or did the strong month of June work through most of the demand buildup?”

Aaron Rakers of Wells Fargo is concerned with the state of the Mac business after sales data from third-party researchers at IDC estimated a 23% decline in Mac shipments during the quarter.

See more: The PC industry has suffered its worst downturn in years, but how bad it will be depends on Apple

The data point prompted him to wonder “whether Apple had worsening supply restrictions during the quarter that prevented shipments to the channel, or if supply improved, but the company decided to cut inventories given the overall concern.”


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