Tim Cook, chief executive officer of Apple Inc., speaks during the Apple Worldwide Developers Conference at the Apple Park campus in Cupertino, California, U.S., on Monday, June 6, 2022.
David Paul Morris | Bloomberg | beautiful pictures
Apple earnings on Thursday for the quarter ended June.
The third quarter of Apple’s fiscal year is often the smallest quarter by sales for the company. This quarter is in the second half of the iPhone’s annual refresh cycle as investors begin to expect the launch of a new phone model, helping to boost sales starting in late September or October. .
This year, analysts and investors will keep a close eye on Apple earnings in the face of many new macroeconomic trends, including decrease consumer confidencerise interest rateand Decade high inflation.
So far, Apple’s sales have been strong, partly because of their customers a well-to-do group. But any signal that people are stopping buying Macs and iPhones because of concerns that inflation or a recession could have an impact on the economy as a whole.
Apple also has significant exposure to China, both the market in which its products are sold and the country where most of its products are assembled. Some Apple factories in China were at one point changed or suspended production in the 6th quarter due to Covid-19 shutdown.
Analysts polled by FactSet predict Apple will report revenue of $82.8 billion, up less than 2% year-over-year and the slowest quarter since the start of the pandemic.
Analysts are also expecting earnings of $1.16 per share, a 10.7% year-over-year decline. Gross margin will also fall from 43.7% last quarter – an all-time high for Apple – to between 42% and 43%, the company said in April.
China’s supply problems and lockdown
In April, the story for Apple is not about demand but about supply. “Right now, our main focus is on supply,” Apple CEO Tim Cook told analysts.
Apple has warned of $4 to $8 billion in revenue stemming from supply problems, including chip shortages and troubled manufacturing. Some analysts say that Apple will signal that it has managed the supply chain well and that revenue will end up on the low end of Apple’s guidance.
“We believe the company has managed its supply chain better than it planned a quarter ago, while continuing to gain market share in another tough quarter for smartphones and PCs.” Deutsche Bank analyst Sidney Ho wrote in a recent note.
That could be good for iPad sales, which have suffered over the past few quarters as Apple prioritizes parts for the iPhone and other products.
“We also expect iPad sales to improve in part due to improved supply and believe Apple’s $4 billion to $8 billion supply comment for the June quarter is more likely to be at the lower end of the US market. this range,” wrote Canaccord Gen. analyst T. Michael Walkley in a note this month.
Apple has struggled with outages in Chinese cities, including in Shanghai. Covid restrictions may have hurt Apple’s iPhone sales in China early in the quarter, but could have counted sales in June when people were ready to spend.
Analysts polled by FactSet predict that Apple’s Greater China sales will be around $13.79 billion, down from $14.56 billion a year ago.
September quarter demand
Investors will also be listening to see if Apple is signaling consumer weakness in any part of the world.
“We believe outlook/demand commentary will be central as we try to gauge the impact on Apple’s earnings in the consumer/environmental case,” said Wells Fargo analyst Aaron Rakers. macro-field slows down”.
Smartphone and PC sales are slowing, but Apple is less affected because the premium market, where it sells, has recovered more. TSMC, Apple’s main processor supplier, warned that demand for PCs, smartphones and consumer electronics is trending weaker.
If Apple signals that demand is slowing, that would be another signal of a potential recession.
Goldman Sachs’ Rod Hall believes “premium demand may start to weaken in Europe due to high inflation and falling consumer confidence.”
Apple has not announced a hiring slowdown or other cost control measures, unlike Alphabet, Tesla, Microsoftand Meta. But Apple is quietly slowing its hiring pace, according to Bloomberg Newsand some analysts believe the company’s management can talk about its cost control strategy.
Apple has not provided guidance since the start of the pandemic, citing uncertainty, and some expect the trend to continue.
“While we do not expect Apple to guide the F4Q22, the company is likely to provide qualitative comments as it has done for several quarters,” Rakers wrote.
Can Apple remain a safe haven?
Overall, analysts still believe in Apple as a well-run company with ample cash balances, loyal customers, and competitive products.
But can Apple remain a safe-haven as other tech stocks fall and the market crashes? So far, Apple is down nearly 15% in 2022, but that’s better than the Nasdaq, which is down 18%.
“Apple remains the best consumer electronics company to invest in across cycles, and with more than 60% of sales being more staples in nature, strong brand loyalty and constant innovation product/service, we believe it is better insulated than its peers during the downturn,” Morgan Stanley’s Huberty wrote.
One key for Apple investors during a downturn will be the growth of its services businesses, which makes overall hardware sales growth less important. Apple services, including monthly subscriptions, billing fees, warranties, search licensing fees from Google, and iPhone App Store revenue, are also more profitable than the hardware business. firm’s core.
Apple’s services business is projected to grow 12% year-over-year, according to analysts surveyed by FactSet.
That’s a slower rate of growth than the 17% year-over-year growth the company posted in the second quarter, and a significant drop from the 27% growth Apple posted in the business sector. its services in 2021.
JP Morgan’s Samik Chatterjee believes Apple’s share buyback plan will boost the stock’s price, even if its earnings drop. Apple’s Board of Directors $90 billion authorized in stock buybacks and additional dividends in April.
“We believe the resilience of earnings estimates amid macroeconomic slowdowns, including inflation and adverse exchange rates, will continue to drive investors to prefer Apple to cash generation.” The strong side and balance sheet will allow it to offset any earnings dilution caused by Macro through acquisitions,” Chatterjee wrote in a note.
