Sometimes, the cyclicity works in Apple’s favor.
The tech giants that make iPhones, iPads and Mac computers are accustomed to slow heat. The third fiscal quarter ending June is usually the company’s weakest in sales, thanks mostly to its pattern of launching new iPhones in the fall. And this year’s June quarter could be even weaker, given the Covid-driven lockdown in China that has shut down some factories producing Apple products.
The company warned investors during its second-quarter earnings call late Thursday that such constraints could reduce revenue in the June period by $4 billion to $8 billion. Apple still doesn’t give an actual revenue forecast — a practice that seems to have died out with the start of the pandemic — but analysts slashed their estimates for the June quarter by an average of about 3%. Wall Street now expects revenue of about $83.5 billion for the quarter, a 2.5% increase from the same period last year.
It was a disappointing news after an otherwise strong report. Apple’s revenue and operating income for the March quarter both grew 9% year-over-year, beating Wall Street’s targets. The latest iPhone 13 models are still selling well – despite challenging comparisons with a major upgrade cycle last year. And the Mac is booming, driven by a strong upgrade cycle for machines with Apple’s new in-house chips. Mack revenue for the second straight quarter surpassed $10 billion and beat analysts’ forecasts by 14%. Analysts now expect Mac to generate about $40 billion in revenue this fiscal year — a significant bump for a segment that has historically averaged about $25 billion in annual revenue.
Still, the warnings for the current quarter were a sharp reminder that the world’s most valuable public company is not untouched by the adverse forces affecting the world. And Apple is still highly leveraged for China, where most of its products are manufactured. Chief executive Tim Cook said on Thursday’s earnings call that “almost all affected final assembly factories have now restarted.” More shutdowns could pose some risks for this year’s new iPhone models expected to arrive in the fall. But Chris Casso of Raymond James says builds on the new models don’t usually start until August, which gives Apple some breathing room to get its factories back on line.
It also helps that Apple has been here before. The lockdown at the start of the pandemic delayed the launch of the iPhone 12 model in late 2020 by almost a month. But those devices still managed to spark a very strong upgrade cycle, with iPhone segment revenue up 39% for the fiscal year ended September of 2021. Estimates for this year and next were already pretty modest, taking into account the longer replacement cycles for the pricier iPhones. Apple’s slow summer may still have a bright end.