Benzinga - Apple Inc. (NASDAQ: AAPL) joins a couple of its other big tech peers, including Amazon Inc. (NASDAQ: AMZN) and Alphabet Inc. (NASDAQ: GOOGL) (NASDAQ: GOOG), in releasing its quarterly report on Thursday, after the market close:
What Street Is Bracing For: The December quarter, which is Apple’s fiscal year first quarter, is also its busiest and seasonally strong quarter. Expectations this time around are muted.
Apple is not into the habit of announcing quantitative revenue and earnings per share, or EPS, guidance. On the fourth-quarter earnings call held in late October, CFO Luca Maestri said the year-over-year growth in revenue will slow down in the December quarter.
He flagged a 10 percentage-point impact from adverse currency effect, macroeconomic challenges slowing the Service sector revenue growth and a substantial decline in Mac revenue due to tougher comparisons. The first quarter of 2022 benefited from the launch and the associated fill of the newly redesigned MacBook Pro with M1 chips.
Incidentally, the dollar has weakened since then amid the Fed’s normalization of rates.
Little did Maestri expect Apple’s China production reliance to return to haunt the company. In October, the company’s main supply chain partner Hon Hai Precision Manufacturing Company Limited (OTC: HNHPF) had to shutter its main iPhone assembly plant in Zhengzhou, China.
Apple came back in early November and said the facility was operating at significantly reduced capacity on account of which the iPhone 14 Pro and iPhone 14 Pro Max shipments would be lower than it previously anticipated.
Wall Street analysts have tempered their EPS expectations for the quarter, taking it down from $2.08 at the start of the quarter to $1.94.
Analysts, on average, expect, the company to report EPS of $1.94, down 7.62% from the year-ago EPS of $2.01, according to Benzinga Pro data. Sequentially, the consensus marks a 50.39% increase from the previous quarter’s $1.29.
Apple’s revenue for the first quarter, which encompasses the key holiday quarter, is expected at $121.2 billion, down 2.20% from $123.95 billion in the year-ago quarter. In the preceding third quarter, the top line was at $90.15 billion.
Margin Profile: Maestri guided the first-quarter gross margin to 42.5%-43.5%. This compares to the preceding quarter’s 42.26% and the year-ago quarter’s 43.76%.
Unlike its tech peers, Apple has not announced any massive layoffs so far. Wedbush’s Daniel Ives said the company is unlikely to announce large-scale layoffs as it's in a unique position to withstand the economic storm.
Product-Geographic Revenue: Apple’s flagship hardware product — iPhone — has continued to be the company’s cash cow. Over the past year, it has accounted for a little over half the total revenue.
Credit Suisse analyst Shannon Cross said she expects iPhone revenue to be challenged due to production constraints. That said, market research firm Canalys said Apple ended the December quarter with its higher-ever quarterly market share for smartphones and took the pole position in the global smartphone market.
Morgan Stanley’s Erik Woodring models iPhone revenue of $68.9 billion, assuming shipments of $75.5 million units and an average selling price of $916.
The next big substantially contributing segment is the Services business, which leverages the company’s huge installed base of active devices. The company said it had 900 million paid subscriptions at the end of the September quarter.
With the management signaling that chip shortages were immaterial for the quarter, Credit Suisse’s Cross said the company may have been able to meet the demand for Macs and iPads. Morgan Stanley’s Woodring expects iPad and Mac revenues of $8.5 billion and $9 billion, respectively. He models $20.9 billion in revenue for the Services segment.
Geographically, although Apple derives about 40% of its revenue from Americans, investors would be keen to know how it fared in China. The Greater China region, which includes mainland China, fetched about 20% of its revenue in the third quarter.
Price Action: Apple’s stock hit an all-time high of $182.94 in early January 2022 before pulling back sharply through the year. The low point of the year was $125.87 hit in late December. The stock lost 26.41% for the year, but not as worse as the Nasdaq Composite’s 33% plunge.
Despite plunging further in early January, Apple stock has recovered along with the broader market this year. Year-to-date, the stock has gained 11.93%.
The average analysts’ 12-month price target for Apple is $173.44, according to TipRanks, suggesting potential for a 19.26% upside.
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