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July 26, 2022, 10:01 a.m. EDT

Apple has been worried about iPhone supply, but that may swing to demand concerns

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By Emily Bary

Throughout the pandemic, Apple Inc.’s biggest challenge has been maintaining appropriate supply of its devices, but as the company heads toward a new iPhone launch, could the equation flip?

Apple /zigman2/quotes/202934861/composite AAPL -2.54% benefited from resilient demand in the first couple of years of the COVID-19 crisis, as governments pumped out stimulus funds and consumers looked for new devices that would better enable them to work and study from home. With inflation continuing to slam consumers, however, some analysts are worried about a potential cooling of smartphone demand.

Investors will get a sense for how inflationary dynamics are impacting Apple when the company reports fiscal third-quarter results Thursday afternoon. While the company may shed light on how evolving consumer-spending trends manifested in the June-quarter results, Wall Street will be especially focused on how Apple expects smartphone-buying patterns to play out in the next iPhone cycle, which should kick off this fall.

“As we look to September, eyes are on [foreign-exchange] impact and any signs of a demand slowdown ahead of the iPhone14 launch,” Morgan Stanley’s Katy Huberty wrote.

About a month ago, her colleague Erik Woodring at Morgan Stanley wrote of “deteriorating” data points concerning low-end and medium-end consumer spending more generally, while noting that “the risks of a pullback at even the high-end consumer are rising.”

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Woodring saw Apple as better-positioned than other consumer hardware companies to contend with a possible slowdown, though he said that “it would be shortsighted to believe Apple is completely immune to a weaker consumer.”

JPMorgan’s Samik Chatterjee wrote that long-only investors “are hoping for…a material cut in estimates to account for the headwinds from pullback in consumer spending to lower the bar heading into the iPhone 14 launch.”

Getting a glimpse of Apple’s own expectations has become harder since the company has declined to offer traditional financial forecasts during the COVID-19 pandemic. Assuming the company sticks with this pattern, investors will be left to deduce trends from the company’s qualitative comments, as well as any details it provides about how performance could stack up relative to recent quarters.

“Looking out to Sep-Q, we are unsure what guidance management will give, but we expect some conservatism given the macro backdrop despite recent hardware strength,” wrote Barclays analyst Tim Long.

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Any sort of outlook will be of particular interest to investors this time around since it could also hint at whether the smartphone giant expects its new phones to launch toward the end of the September quarter or the beginning of the December quarter, a data point that’s helpful for forecasting.

As analysts start to think about potential inflationary effects on iPhone 14 demand, it’s worth noting that just three months ago, Wall Street was highly focused on supply. Apple warned on its last earnings call that it expected to see steeper supply pressures in the June quarter than in the March one, due in part to temporary factory closures in China .

“Although hardware sales had to contend with China COVID-19 and supply constraints during the June quarter, we think previously provided assumptions by the company and consensus views appear conservative,” CFRA’s Angelo Zino wrote. “The reopening of China provides good momentum for the Sep-Q from both a supply and demand perspective.”

What to expect

Revenue: Analysts tracked by FactSet expect Apple to post $82.7 billion in revenue, up from $81.4 billion a year before. According to Estimize, which crowdsources projections from hedge funds, academics and others, the average estimate is for $84 billion in revenue.

Analysts anticipate growth in revenue on the whole despite mixed expectations on a category basis, with projected increases on just two revenue lines: services and Macs. The FactSet consensus calls for services revenue to rise to $19.8 billion from $17.5 billion a year earlier. It also models $8.7 billion in Mac revenue, up from $8.2 billion in the year-prior period, despite mixed messages on Apple from quarterly shipment reports on personal computers .

US : U.S.: Nasdaq
$ 142.91
-3.72 -2.54%
Volume: 64.73M
Dec. 6, 2022 4:00p
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