First drop in revenue since 2019 is expected

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

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Analysts expect Apple to post its first annual revenue decline since Q3 2019 when it reports earnings on Thursday. There are a few contributing factors.

The company can’t produce enough high-end iPhones when their main assembly facility is in China Turn off for weeks during the Covid lockdown. As early as November, customers in many regions noticed that Apple couldn’t promise Christmas delivery of a new iPhone.

Apple gave a rare Investor warning that month explained that production problems would result in lower shipments than “previously anticipated”. It’s a data point that has many analysts tracking stocks slashing their estimates.

“We believe the greatest impact of the disruption was felt in early to mid-November when wait times reached their extremes (link) as US wait times for the 14 Pro and 14 Pro Max hit 34 days while wait time in China was 34 days premium hit 36 ​​days,” UBS analyst David Vogt wrote in January.

Analysts polled by Refinitiv predict Apple will report just over $121 billion in revenue for the December quarter, which would be a slight drop from the company’s $123.9 billion a year ago. .

But the problems are not exclusive to Apple. The PC and smartphone markets are slumping as consumers and businesses digest sales from the pandemic and cut costs in preparation for a possible recession.

According to IDC, the smartphone market saw an 18% decline in sales in the fourth quarter. The worst decline ever recorded by a market research company. PC market down 28% in the fourth quarter, according to the company. But many investors believe Apple is outperforming the competition even in a contract market.

“While the state of consumer demand remains a short-term concern, we believe the fundamental driving factors of the Apple model – growing install base and per-user spending – remains intact and the strength/stability of the Apple ecosystem remains undervalued,” Morgan Stanley analyst Erik Woodring wrote in a note earlier this month.

Here’s what Wall Street is expecting, according to Refinitiv consensus estimates:

  • Revenue: 121.19 billion USD
  • Earnings per share: 1.94 USD per share
  • iPhone revenue: 68.29 billion USD
  • iPad revenue: 7.76 billion USD
  • Mac revenue: 9.63 billion USD
  • Other product revenue: 15.26 billion USD
  • Service revenue: 20.67 billion USD

Apple’s March Quarterly Guide

Apple hasn’t released guidance since 2020, citing the first uncertainty caused by the pandemic. However, companies often provide several data points that can help analysts understand the company’s performance.

Investors want to know if a shortage of iPhone 14 Pro models in the 12th quarter will boost demand in the third quarter as supply has improved.

Analysts expect just over $98 billion in revenue for the third quarter, according to consensus estimates, showing slight growth year-over-year.

“While we believe it is well understood that Apple’s Q3 revenue will decline at a seasonally lower rate as iPhone demand declines from Q2 to Q3,” Morgan Stanley’s Woodring wrote in a note. last week, “the consumer electronics spending landscape remains challenging, with tablets, PCs, and more discretionary products (i.e. wearables) all facing challenges.” demand headwind.”

But if consumer confidence erodes in the face of higher interest rates and shrinking worldwide savings, then Apple could hint to investors that the company’s third quarter will slow down.

“While we don’t expect a resumption of the typical Apple earnings guidance before Covid, we expect the commentary to be cautious on Product demand across the board,” wrote UBS’ Vogt. .

If management’s comments are mild, investors looking for a silver lining may want to consider Apple’s services business, which has been profitable and growing strongly for years. However, some data points for the fourth quarter, including Apple’s own data Payout on the App Storesuggests a significant slowdown in the App Store’s growth, although analysts disagree on its severity.

The App Store is one of the biggest components of the service, but it’s just one part of the business, which includes online registration, warranties, and search licensing fees. DA Davidson analyst Tom Forte wrote in January that Apple stock could move higher if services like Apple TV+ and Apple Music appear to be generating a higher percentage of revenue for Apple.

According to Refinitiv estimates, services are expected to total $20.67 billion in the 12th quarter, with a growth rate of 5.9%.

Analysts will also be watching to see if the strong dollar continues to hurt Apple, given that the majority of its sales are overseas. During the December quarter, the British pound, Canadian dollar and Japanese yen all weakened against the dollar. Apple management previously said a strong dollar would hamper sales growth by 10 percentage points.


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