First drop in turnover expected since 2019

First drop in turnover expected since 2019

Apple CEO Tim Cook speaks during 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- PETIT/AFP via Getty Images)

Brittany Hosea-small | AFP | Getty Images

Analysts expect Apple to post its first year-over-year decline in revenue since the March 2019 quarter, when it reported results on Thursday. There are a few contributing factors.

The company couldn’t build enough of its high-end iPhones when its main assembly plant in China was shuttered for weeks during the Covid shutdowns. Customers in many regions noticed as early as November that Apple could not promise delivery of a new iPhone by Christmas.

Apple issued a rare warning to investors that month, saying production issues would lead to lower shipments than “previously anticipated.” It was a data point that caused many analysts monitoring 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 extreme levels (link) as US wait times for the 14 Pro and the 14 Pro Max reached 34 days while the wait time in China at the high end was 36 days,” UBS analyst David Vogt wrote in January.

Analysts polled by Refinitiv expect Apple to report just over $121 billion in revenue in the December quarter, down slightly from the company’s $123.9 billion. one year ago.

But the problems are not specific to Apple. PC and smartphone markets are collapsing as consumers and businesses digest pandemic sales and cut costs to prepare for a possible recession.

The smartphone market saw an 18% drop in shipments in the fourth quarter, according to IDC, the market research firm’s worst drop ever. The PC market fell 28% in the fourth quarter, according to the company. But many investors believe Apple is outperforming its competitors even in a shrinking market.

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

Here’s what Wall Street expects, according to consensus estimates from Refinitiv:

  • Returned: $121.19 billion
  • Earnings per share: $1.94 per share
  • iPhone revenue: $68.29 billion
  • iPad revenue: $7.76 billion
  • Mac income: $9.63 billion
  • Revenue from other products: $15.26 billion
  • Service revenue: $20.67 billion

Apple’s forecast for the March quarter

Apple hasn’t given guidance since 2020, citing uncertainty first caused by the pandemic. However, the company generally provides a few data points that can give analysts an idea of ​​how it is performing.

Investors want to know if the shortage of iPhone 14 Pro models in the December quarter will boost demand in the March quarter now that supply has improved.

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

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

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

“While we don’t expect the resumption of Apple’s typical pre-Covid detailed earnings guidance, we expect commentary to be cautious regarding product demand across the board,” UBS’s Vogt wrote. .

If management’s comments are weak, investors looking for a silver lining might want to look into Apple’s services business, which has been profitable and growing strongly for years. However, several data points in the fourth quarter, including Apple’s App Store payments, suggest a significant slowdown in App Store growth, although analysts are divided on its severity.

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

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

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

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