Analysts expect Apple to report its first year-over-year revenue decline since the March 2019 quarter when it reports earnings Thursday. There are several contributing factors.
The company couldn’t produce enough of its high-end iPhones when its main assembly plant in China was shut down for weeks during the Covid lockdown. Customers in many regions noticed back in November that Apple could not promise delivery of a new iPhone in time for Christmas.
This month, Apple issued a rare warning to investors, explaining that production problems would lead to lower shipments than “previously expected.” It was a data point that caused many analysts watching the stock to lower their estimates.
“We believe the peak impact of the disruption was felt in early to mid-November, when wait times reached an extreme level (link), as wait times in the U.S. for the 14 Pro and 14 Pro Max reached 34 days, while wait times in China reached 34 days. first-class at 36 days,” UBS analyst David Vogt wrote in January.
Analysts polled by Refinitiv expect Apple to report revenue of just over $121 billion in the December quarter, down slightly from the company’s $123.9 billion a year ago.
But the problems aren’t specific to Apple. PC and smartphone markets are falling as consumers and businesses digest pandemic-induced sales and cut spending to prepare for a possible recession.
The smartphone market saw an 18 percent drop in shipments in the fourth quarter, the worst drop ever recorded by the research firm, according to IDC. The PC market fell 28 percent 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 an issue in the short term, we believe the key drivers of Apple’s model — the growing installed base and user spending — remain unchanged, and the strength/stability of Apple’s ecosystem remains undervalued,” Morgan Stanley. analyst Eric Woodring wrote in a note earlier this month.
Here’s what Wall Street expects, according to Refinitiv’s consensus forecast:
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.
Revenue from other products: $15.26 billion.
Services revenue: $20.67 billion.
Apple’s outlook for the March quarter.
Apple hasn’t given guidance since 2020, citing uncertainty caused by the pandemic. However, the company usually provides a few data points that can give analysts an idea of how it’s doing.
Investors want to know whether a shortage of iPhone 14 Pro models in the December quarter will spur demand in the March quarter as supply has improved.
Analysts expect March quarter sales to be just over $98 billion, according to the consensus forecast, which represents a slight increase from last year.”While we think it’s well known that Apple’s March quarter revenue should decline at a less seasonal pace due to the increase in iPhone demand from the December quarter to the March quarter,” Morgan Stanley’s Woodring wrote in a note last week, “Consumer electronics spending remains challenging, with tablets, PCs and more discretionary products (e.g., wearable devices) facing a steady headwind from demand.
But if consumer confidence falls in the face of higher interest rates and declining savings globally, Apple may suggest to investors that the company’s March quarter will be slow.
“While we don’t expect a resumption of the detailed forecasts typical of Apple’s pre-Covid earnings, we expect comments to be cautious on product demand across the board,” UBS’s Vogt wrote.
If management’s comments are soft, investors looking for a silver lining may want to take a look at Apple’s services business, which has been profitable and growing rapidly for years. Still, several fourth-quarter figures, including Apple’s own payments to the App Store, point to a significant slowdown in App Store growth, though analysts disagree on its severity.
The App Store is one of the largest components of the services, but it’s only part of the business, which includes online subscriptions, warranties and search license fees. Apple stock could rise if services such as Apple TV+ and Apple Music look like they bring in a higher percentage of Apple’s revenue, DA Davidson analyst Tom Forte wrote in January.
