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Techspace - When Apple announces results on Thursday, analysts predict it will report its first year-over-year revenue decrease since the March quarter of 2019. There are a few things that have a role.
When the company's principal assembly plant in China was locked down for weeks due to Covid lockdowns, it couldn't produce enough high-end iPhones. Customers in many places realized as early as November that Apple couldn't guarantee a new iPhone for Christmas.
That month, Apple issued an unusual warning to investors, stating that manufacturing concerns will result in fewer sales than "previously projected." It was a data item that prompted many analysts who were keeping an eye on the company to lower their expectations.
"We believe the peak effect of the interruptions was seen in early to mid-November as wait times reached an extreme level (link), with wait periods in the US for the 14 Pro and 14 Pro Max reaching 34 days and wait times in China at the high end reaching 36 days," UBS analyst David Vogt wrote in January.
Refinitiv's survey of analysts predicts Apple will post sales of a little over $121 billion in the December quarter, a modest decrease from the $123.9 billion the firm reported in the same period last year.
The issues, though, are not exclusive to Apple. As consumers and companies process their purchases and make expense reductions to get ready for a potential recession, the PC and smartphone industries are in free fall.
According to IDC, the smartphone industry suffered an 18% drop in shipments in the fourth quarter, the largest loss ever recorded by the market research organization. According to the business, the PC market dropped 28% in the fourth quarter. However, many investors feel that Apple is beating its competition even in a decreasing market.
"While the state of consumer demand remains a near-term concern, we believe the underlying drivers of Apple's model - a growing installed base and spend per user - remain intact, and that the strength/stability of Apple's 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
Earnings per share: $1.94 per share
iPhone revenue: $68.29 billion
iPad revenue: $7.76 billion
Mac revenue: $9.63 billion
Other products revenue: $15.26 billion
Services revenue: $20.67 billion
Guidance for Apple's March Quarter
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Since 2020, Apple has not provided guidance, citing the pandemic's initial level of uncertainty as the reason. The corporation often offers a few data points, though, to help analysts gauge its performance.
Investors are interested in finding out whether the scarcity of iPhone 14 Pro models during the December quarter will influence demand during the March quarter now that supply has increased.
According to average projections, analysts anticipate that sales would total slightly over $98 billion in the March quarter, which would represent a modest increase from the prior year.
"While we believe it is well understood that Apple's March quarter revenue will decline at a less-than-seasonal rate due to the shift of iPhone demand from the December quarter to the March quarter," Morgan Stanley's Woodring wrote in a note last week, "the consumer electronics spending backdrop remains challenging, with tablets, PCs, and more discretionary products (i.e. wearables) all facing continued demand headwinds."
However, if consumer confidence deteriorates as a result of rising interest rates and diminishing savings throughout the world, Apple may signal to investors that the company's March quarter would be weak.
“While we don’t expect the resumption of detailed guidance typical of Apple earnings before Covid, we expect the commentary to be cautious regarding Product demand across the board,” UBS’s Vogt wrote.
If management commentary is soft, investors looking for a silver lining might want to look at Apple’s services business, which is profitable and has been growing strongly for years. However, several data points in the fourth quarter, including Apple’s own App Store payouts, suggest a significant slowdown in App Store growth, although analysts are split on its severity.
The App Store is one of the largest components of services, but it’s only a part of the business, which includes online subscriptions, warranties, and search licensing fees. Apple shares could push higher if services such as Apple TV+ and Apple Music look like they’re generating a higher percentage of Apple’s revenue, D.A. Davidson analyst Tom Forte wrote in January.
According to Refinitiv projections, services will reach $20.67 billion in the December quarter, marking a 5.9% growth rate.
Analysts will also be watching to see if the strong dollar continues to damage Apple, considering that the majority of its sales are made outside of the United States. The British pound, Canadian dollar, and Japanese yen all fell against the dollar during the December quarter. Apple executives have stated that a strong dollar would be a 10% drag on sales growth.
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