Apple Inc. expects to face billions of dollars in supply-chain impacts during the current quarter, but analysts aren’t sweating the smartphone giant’s latest words of caution.
topped expectations with its latest quarterly results Thursday, the company warned that it expects supply-chain challenges to cause a $4 billion to $8 billion negative impact in the June quarter, “substantially larger” than what was seen in the March period. Apple now has to deal with the consequences of recent COVID-related factory closures in China on top of the global chip shortage that has dogged it in recent periods.
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Apple shares turned lower in after-hours trading Thursday once executives issued the supply-chain warning on the company’s earnings call, but they were ahead 0.8% shortly after Friday’s open as analysts said they weren’t too worried about the temporary supply-chain problems.
“The production issues ought to be transitory – and they occur at the best possible time of the year during the weakest seasonal period ahead of fall launches,” wrote Raymond James analyst Chris Caso. “We think that sets September up well assuming China normalizes.”
While Caso saw the supply-chain woes as a temporary problem, he said he was more concerned about the impacts of foreign-exchange trends and the Russia business suspension on Apple’s revenue. He suggested that Apple “may need to raise prices in local currency when new products launch in the fall, if exchange rates don’t change by then.” In the past, these sorts of price increases have dampened unit demand, he continued.
Still, Caso is bullish on Apple’s stock, reiterating an outperform rating and $190 price target after the report.
Citi Research analyst Jim Suva admitted that Apple’s prediction of further supply challenges was “not a positive” though he considered it a ‘good’ problem because demand is materially outpacing supply and Apple’s installed base continues to grow.”
“For those who argue that demand is declining and want to be negative on the stock, we point to the long product lead times, no compelling competitive substitution product, and an Apple installed base that is growing that will lead to future services revenues, which are more profitable than product revenues,” continued Suva, who has a buy rating and $200 target on the shares.
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Jefferies analyst Kyle McNealy offered that Apple’s June-quarter expectations weren’t “as bad as they initially seemed.”
By his math, after making some assumptions, Apple’s guidance implies about $82.1 billion to $87.7 billion in June-quarter revenue, which translates to $84.9 billion at the midpoint. That midpoint figure was about 2% below the $86.3 billion consensus estimate for June, and translates to about $1.19 in earnings per share, by his calculations, which was below the $1.24 consensus figure.
“Overall, that’s not that bad given that before the print, options were implying a 2.3% downward stock move and likely a low-single-digit earnings miss,” he wrote. McNealy has a buy rating on Apple shares and a $200 price target.
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Bank of America’s Wamsi Mohan added that the wide range Apple offered when estimating the supply-chain headwinds suggested “conservatism” in the company’s outlook.
Shares of Apple have lost 4% over the past three months as the Dow Jones Industrial Average
has fallen about 3%.