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Why is Apple initially down despite its good results? Analysis

July 27 (.) – Apple Inc. said on Tuesday that a global chip shortage, which has hampered its ability to sell Macs and iPads, will begin to affect iPhone production and forecast a slowdown in revenue growth. , which lowered its shares.

Apple executives said revenue for the current fiscal fourth quarter will grow in double digits, but will be below the 36.4% growth rate in the just ended third quarter. Growth will also slow in Apple’s closely watched services business, they said.

In a conference call with investors, Apple executives also said that while the impact of the chip shortage was less severe than feared in the third quarter, it will worsen in the fourth, spilling over into iPhone production.

Shares of Apple, whose valuation has doubled in about three years to $ 2.5 trillion, fell 1.7% to $ 144.24 in after-call trading.

Earlier in the day, Apple reported third-quarter sales and profits that beat analysts’ expectations as consumers bought premium versions of its 5G iPhones and signed up for its subscription services. Sales in China grew 58% to $ 14.76 billion in the quarter, which ended June 26.

Driven by better-than-expected iPhone sales, total revenue reached $ 81.43 billion, above analysts’ expectations of $ 73.3 billion, according to IBES data from Refinitiv. Apple’s earnings were $ 21.74 billion, or $ 1.30 per share, above estimates of $ 1.01 per share, according to Refinitiv.

During the investor call, CEO Tim Cook said chips hit by the shortage are made using older technology but are still needed as backup parts to make the company’s flagship device, the iPhone.

“We have some stockouts,” Cook said, “where the demand has been so great and has exceeded our own expectations that it is difficult to get the entire set of parts within the lead times we are trying to achieve.”

Cook declined to predict whether the shortage will last into Apple’s fiscal first quarter, which is when it typically posts its biggest iPhone sales. Angelo Zino, an analyst at research firm CFRA, said Apple may be stockpiling chips for its next generation of phones to the detriment of current models.

“Apple will want as many chips as it can get,” Zino said. “But if we add that to existing supply constraints, Apple is likely to have a harder time meeting demand this year.”

Apple had told investors last quarter that a shortage of chips could dampen sales between $ 3 billion and $ 4 billion.

In an interview Tuesday, Cook told . that the hit to overall revenue in the third quarter was “less than the lower end” of its previously forecast range.

CHINA, 5G

The biggest growth in Apple’s sales came from China, where Cook told . that customers are buying accessories like the Apple Watch to pair with their iPhones.

The 5G upgrade appeared to be driving a better iPhone buying cycle than many analysts expected. Apple said iPhone sales were $ 39.57 billion, almost 50% more than the previous year and above analysts’ expectations of $ 34 billion.

Cook told . that Apple’s iPhone 12 Pro and 12 Pro Max, the device’s premium tier, were strong sellers. That helped drive gross margins to 43.3%, above estimates of 41.9%, according to Refinitiv.

On the conference call, he said that 5G adoption is in its early stages of rollout in many countries around the world. Some analysts wondered if that means the iPhone 5G sales boom won’t last: Consumers can buy a phone ahead of time and keep it until the service rolls out. Other analysts believe that means Apple can continue to capitalize on the boom.

“The low penetration of 5G is a reminder that the best is yet to come for the company’s 5G iPhones,” said Tom Forte, analyst at DA Davidson & Co.

The other big driver of Apple’s results was its services business, which includes paid subscriptions for TV and music, as well as its App Store. Revenue from services reached a record $ 17.49 billion, a third more than a year earlier and above analysts’ expectations of $ 16.33 billion. Cook told . that Apple now has 700 million subscribers across its various platforms, up from 660 million in the previous quarter.

However, CFO Luca Maestri told investors that services growth will slow down.

“We expect still significant growth in services, but not at the level we have seen in June,” he said on the call.

Cook said Apple broke quarterly sales records on many of its first-hand services, including its AppleCare hardware insurance plans, which had slowed somewhat during the pandemic when many of the company’s outlets were closed.

Sales of iPads and Macs were $ 7.37 billion and $ 8.24 billion, compared to analysts’ expectations of $ 7.15 billion and $ 8.07 billion, according to Refinitiv data. (Reported by Stephen Nellis in San Francisco, Danielle Kaye in New York, and Subrat Patnaik in Bengaluru; Editing by Sonya Hepinstall) Translate serenitymarkets

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