Apple CEO Tim Cook speaks at a special Apple event at Apple Park in Cupertino, California on September 7, 2022. – Apple is expected to unveil the new iPhone 14. (Photo by Brittany Hosea-Small / AFP) (Photo by BRITTANY HOSEA- SMALL/AFP via Getty Images)
Brittany Hosea-small | Afp | Getty Images
Analysts expect Apple to post its first year-over-year revenue decline since the March 2019 quarter when it reported earnings on Thursday. There are several contributing factors.
The company was unable to make enough high-end iPhones when its main assembly facility in China was closed for weeks during the covid lockdown. Customers in many regions have been finding out since November that Apple can’t promise to deliver new iPhones by Christmas.
Apple issued a rare warning to investors earlier this month by explaining that production problems will result in lower shipments than “previously expected.” It’s a data point that has prompted many analysts who monitor the stock to cut their estimates.
“We believe the peak impact of the disruption was felt in early to mid-November as wait times reached extreme levels (link) as wait times in the US for the 14 Pro and 14 Pro Max reached 34 days while wait times in China peaked at 36 days,” UBS analyst David Vogt wrote in January.
Analysts polled by Refinitiv expect Apple to report just over $121 billion in the December quarter, which would be a slight decline from the company’s $123.9 billion from a year ago.
But the problem is not specific to Apple. The PC and smartphone market collapsed as consumers and businesses digested sales from the pandemic and cut costs to prepare for the recession.
The smartphone market saw an 18% drop in shipments in the fourth quarter, according to IDC, the worst decline recorded by the market research firm. The PC market fell 28% in the fourth quarter, according 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 close concern, we believe that the fundamental drivers of Apple’s model – the installed base and spending per user – remain intact, and the strength/stability of the Apple ecosystem remains undervalued,” Morgan Stanley analyst Erik Woodring wrote in this early note. month.
Here’s what Wall Street expects, according to Refinitiv’s consensus estimate:
- results: $121.19 billion
- Earnings per share: $1.94 per share
- iPhone revenue: $68.29 billion
- iPad revenue: $7.76 billion
- revenue Mac: $9.63 billion
- Other product revenue: $15.26 billion
- Service revenue: $20.67 billion
Apple’s March quarter guidance
Apple has not provided guidance for 2020, citing uncertainty caused by the pandemic. However, Apple usually provides some data points that can give analysts a sense of how it’s doing.
Investors want to know whether the shortage of iPhone 14 Pro models in the December quarter will affect demand in the March quarter now that supply has improved.
Analysts expected sales of more than $98 billion in the March quarter, according to consensus estimates, indicating modest year-over-year growth.
“While we believe it is well understood that Apple’s March quarter revenue should decline at a lower than seasonal level due to the pushout of iPhone demand from the December quarter to the March quarter,” Morgan Stanley’s Woodring wrote in a note last week, “the background of consumer electronics spending remains challenging, with tablets, PCs and other wearable products (i.e., wearables) all will continue to face the same problem as expected.”
But if consumer confidence erodes in the face of higher interest rates and shrinking savings around the world, then Apple can suggest to investors that the company’s March quarter will be slow.
“While we don’t expect detailed guidance on Apple’s pre-Covid earnings, we expect the comments to be cautious about product demand across the board,” UBS’s Vogt wrote.
If management comments are soft, investors looking for a silver lining may want to look at Apple’s services business, which is profitable and has been for many years. However, several data points in the fourth quarter including Apple’s own App Store payments show a significant decline in App Store growth, though analysts are divided on the severity.
The App Store is one of the largest components of the Service, but it’s only part of the business, which includes online subscriptions, warranties, and search license fees. Apple shares could push higher if services like Apple TV+ and Apple Music look like they are generating a higher percentage of Apple’s revenue, DA Davidson analyst Tom Forte wrote in January.
Services are expected to total $20.67 billion in the December quarter, according to Refinitiv estimates, which represents a growth rate of 5.9%.
Analysts will also be watching to see if the strong dollar continues to hurt Apple, given that it has many overseas sales. During the December quarter, the British pound, Canadian dollar, and Japanese yen all weakened against the dollar. Apple management previously said the strong dollar would be a 10 percent drag on sales growth.