Apple Inc.’s iPhone business has been impacted by COVID-19 restrictions in China. The company’s next earnings report will show how badly the company has been affected and how quickly it has been able to recover.
The smartphone giant doesn’t typically communicate with investors outside of earnings reports and calls, but Apple AAPL,
Executives issued a rare warning in November, revealing that pandemic-related restrictions at a Foxconn facility would result in lower-than-expected iPhone 14 Pro and Pro Max shipments. Analysts are less concerned about what happened in the December quarter than about Apple’s ability to recoup those lost sales going forward.
The results will also indicate whether Apple was able to maintain momentum in its Mac business after a record quarter for the segment three months ago. Apple is unlikely to break that record this time around, but the Mac business could still be a source of upside amid iPhone uncertainty.
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Here’s what to expect when Apple releases earnings on Thursday afternoon.
What to expect
Earnings: Analysts tracked by FactSet expect Apple to earn $1.94 per share in its first fiscal quarter, up from $2.10 per share a year earlier. According to Estimize, which relies on projections from hedge funds, academics and others, the average estimate is $1.98 per share.
Returned: The FactSet consensus projects revenue of $121.4 billion for the December quarter, up from $123.9 billion a year earlier. Those contributing to Estimize expect $122.4 billion.
Analysts tracked by FactSet expect iPhone revenue to decline to $67.8 billion from $71.6 billion. billion a year ago. Consensus estimates call for $7.8 billion in iPad revenue, down from $7.2 billion the year before, as well as $9.4 billion in Mac revenue, down from $10.9 billion.
Analysts are modeling $15.3 billion in revenue from apparel, home and accessories for the quarter, up from $14.7 billion a year earlier. Services revenue is expected to grow from $19.5 billion to $20.4 billion.
Movement of stock: Apple shares rose after three of the company’s last five earnings reports, including the last two. The stock has fallen around 19% in the past 12 months, although it is ahead 9% to start 2023. The Dow Jones Industrial Average DJIA,
of which Apple is a part, has fallen about 5% over a 12-month period and is up almost 2% so far in 2023.
Of the 41 analysts tracked by FactSet, 30 have buy ratings, nine have hold ratings and two have sell ratings, with an average price target of $168.48.
What else to watch out for
While Evercore ISI analyst Amit Daryanani saw a possible “downside” to the December quarter from iPhone momentum, he said a pullback in Apple shares suggests “a failure should not materially impact stocks as long as Apple provides guidance that indicates they expect to recover lost sales in FY23.”
Apple’s supply issues are easing, but that doesn’t mean the company is out of the woods.
“With supply chain challenges largely normalized, we now believe AAPL is entering a period of slower demand due to macro factors,” Cowen & Co. analyst Krish Sankar wrote in a note to the media. clients. Apple “has gained market share in the smartphone and laptop markets over the past year, although our latest fieldwork suggests that near-term product releases are seeing reductions from earlier expectations. of the market”.
While Sankar said he believes the iPad business “benefited from seasonality and improved component availability,” his supply chain conversations indicated the potential for “softening demand “within Macs.
Apple hasn’t provided traditional guidance alongside its earnings, but Wall Street will nonetheless be looking for clues ahead.
“The tone of the call will be crucial in understanding the trajectory of underlying demand given that the December quarter was significantly constrained by supply for high-end Pro models of iPhones,” the analyst wrote. of Bank of America, Wamsi Mohan.
Its iPhone tracker “shows that availability has normalized and leads us to conclude that demand may be weaker than expected in 1H23,” he wrote.
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