Expect the first drop in revenue since 2019

Apple CEO Tim Cook speaks at a private Apple event at Apple Park in Cupertino, California on September 7, 2022. – Apple is expected to unveil the new iPhone 14. (Photo by Brittany Hossa-Small/AFP) (Photo by Brittany Hossa-SMALL/AFP via Getty Images)

Brittany Hosea Small | Afp | Getty Images

Analysts predict an Apple It posted its first year-over-year decline in revenue since the March 2019 quarter when it reported earnings on Thursday. There are a few contributing factors.

The company couldn’t build enough of its high-end iPhones when its primary assembly facility in China was closed for weeks during the covid lockdowns. Customers in many regions noticed as early as November that Apple could not promise to deliver a new iPhone around Christmas.

Gave apples rare Warning to investors that month, stating that production issues would result in shipments being lower than “previously expected.” It was a data point that had many analysts eyeing the stock to lower their estimates.

“We believe the peak impact of the disruptions was felt in early to mid-November as wait times reached an extreme levelhttps://news.google.com/__i/rss/rd/articles/CBMiaWh0dHBzOi8vd3d3LmNuYmMuY29tLzIwMjMvMDEvMzAvYXBwbGUtZXhwZWN0ZWQtdG8tcG9zdC1maXJzdC1yZXZlbnVlLWRlY2xpbmUtc2luY2UtMjAxOS1vbi10aHVyc2RheS0uaHRtbNIBbWh0dHBzOi8vd3d3LmNuYmMuY29tL2FtcC8yMDIzLzAxLzMwL2FwcGxlLWV4cGVjdGVkLXRvLXBvc3QtZmlyc3QtcmV2ZW51ZS1kZWNsaW5lLXNpbmNlLTIwMTktb24tdGh1cnNkYXktLmh0bWw?oc=5with US wait time for the 14 Pro and 14 Pro Max being 34 days while China wait time for the high-end hit was 36 days.” UBS analyst David Vogt wrote in January.

Analysts surveyed by Refinitiv expect Apple to report revenue of just over $121 billion in the December quarter, which would be down slightly from the company’s $123.9 billion from last year.

But the problems are not specific to Apple. Computer and smartphone markets are slumping as consumers and businesses digest sales from the pandemic and cut costs to prepare for a potential recession.

The smartphone market saw an 18% drop in shipments in the fourth quarter, according to IDC, and Worst drop ever recorded by a market research firm. PC market down 28% in the fourth quarterAccording to the company. But many investors believe that Apple is outperforming its competitors even in the contract market.

“While the state of consumer demand remains a concern in the near term, we believe that the core drivers of Apple’s model – an increasing installed base and spending per user – remain intact, and that the strength/stability of the Apple ecosystem remains undervalued,” Morgan Stanley analyst Eric Woodring wrote in a note earlier this month.

This is what Wall Street is expecting, according to the Refinitiv consensus estimate:

  • he won: 121.19 billion dollars
  • Earnings per share$1.94 per share
  • iPhone revenue: 68.29 billion dollars
  • iPad revenue: 7.76 billion dollars
  • Mac proceeds: 9.63 billion dollars
  • Other product revenue: 15.26 billion dollars
  • Services revenue: 20.67 billion dollars

Apple’s guidance for the March quarter

Apple has not provided guidance since 2020, citing uncertainty first caused by the pandemic. However, Apple usually provides some data points that can give analysts an idea of ​​how it works.

Investors want to see if a shortage of iPhone 14 Pro models in the December quarter will drive demand in the March quarter now that supply is improving.

Analysts expect sales of just over $98 billion in the March quarter, according to consensus estimates, indicating slight year-over-year growth.

“While we believe it is well understood that Apple’s March quarter revenue should decline at a less than seasonal rate due to driving iPhone demand from the December quarter to the March quarter,” Morgan Stanley’s Woodring wrote in a note last week. “. The consumer electronics spending backdrop remains challenging, with tablets, PCs and more discretionary products (i.e. wearables) all facing persistent demand headwinds.”

But if consumer confidence declines in the face of rising interest rates and shrinking savings around the world, Apple could suggest to investors that the company’s March quarter will be slow.

“While we don’t expect typical pre-Covid Apple earnings guidance to resume, we do expect the commentary to be cautious with respect to product demand across the board,” UBS’s Vogt wrote.

If management’s commentary is weak, investors looking for a positive side may want to take a look at Apple’s services business, which is profitable and has been growing strongly for years. However, several data points in the fourth quarter including Apple App Store Payments It points to a significant slowdown in the App Store’s growth, though analysts are divided on its severity.

The App Store is one of the largest components of Services, but only part of the business, which includes online subscriptions, warranties, and search license fees. DA Davidson analyst Tom Forte wrote in January that Apple shares could rise if services like Apple TV+ and Apple Music appear to generate a higher percentage of Apple’s revenue.

Services are expected to total $20.67 billion in the December quarter, Refinitiv estimates, representing a growth rate of 5.9%.

Analysts will also be watching to see if the strong dollar continues to hurt Apple, since so much of its sales take place abroad. During the December quarter, the pound sterling, the Canadian dollar and the Japanese yen fell relative to the dollar. Apple management previously said that a strong dollar would be a 10 percentage point drag on sales growth.

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