JPMorgan's Samik Chatterjee expects a solid Apple beat next week, but...

"We are trimming our earnings forecasts for F1Q to lower than typical seasonality."

From a note to clients that landed on my desktop Tuesday:

We expect Apple to report solid F4Q (Sep-end) beat, led by solid demand for iPhone 12 series, Macs as well as Services, but expect investor attention to be focused on guidance for F1Q (Dec-end) in light of the recent concerns relative to supply. In that regard, we expect results for F4Q and qualitative guidance for F1Q22 to feel like deja-vu from the last earnings call with a beat accompanied by guidance for lower than typical seasonality for F1Q22, driven by supply limitations.

As we had warned in early October (see here), the primary bottleneck relative to iPhone 13 production worth monitoring was related to the camera module, and checks indicate that while COVID-19 related lockdown in Vietnam has passed the worst point, production continues to face yield challenges in the near term.

As a result, we are trimming our earnings forecasts for F1Q to lower than typical seasonality, but expect the headwinds from supply to be temporary and unlikely to drive any changes to demand as we envision a modest push-out into the future quarters, setting up catalysts in the form of better than typical seasonality starting in F2Q22. We continue to see strong demand for iPhone 13 and 5G iPhone SE relative to low investor expectations to act as a catalyst, the timing of realization of which, although delayed on account of supply headwinds, is unchanged in magnitude.

Maintains Overweight rating and $180 target.

My take: If I had a slice of Apple for every "but" that didn't come true...


  1. David Emery said:
    There’s a REALLY SIMPLE way to check this assertion: What’s the lead time if you order an iPhone 13 today? If the answer is less than 10 days, this ANALyst position is bovine effluent.

    Depending on ‘channel checks’ is a total fool’s errand. You’ll get as much insight into Apple’s supply chain by bending over and looking up…

    But we know “bad news on AAPL sells clicks, and there’s no consequence for being (consistently) wrong.”

    October 19, 2021
    • Roger Schutte said:
      iPhone 13 Pros (a couple different colors + memory configs) are 30-37 days out. I check this every few days and it’s staying right around this.

      October 19, 2021
  2. My position is, 30 days wait on the high-end models is the equivalent of a virtual line around the block. These backorders, while unfortunate, happened long before iPhone 13 was a glimmer in the engineer’s eyes.
    While the financial press sells clicks with old news, the Vietnam factory where the camera modules are assembled “gradually resumed production” in late September. These components, including packaging, are hardly cinderblocks and daily flights from Vietnam connect to various cities, mostly in China, where iPhones are assembled.
    I don’t believe these writers trying to convince us Mr. Cook & Co. failed to anticipate how many new camera modules production runs would require.The necessary parts are warehoused on dry ground, near each plant. Foxconn doesn’t bring in 10,000s of workers to sit around. The way Apple plans, the current output from that Vietnam plant is probably slated for January 2022 builds. If they need that production now, sales must have exceeded Cook’s wildest expectations! Doubtful.
    The chip shortage story does dovetail with the lengthening delivery dates for certain models (30d+). Anyone can learn that by placing an order. There may well be another necessary chip by TI, Broadcom or who knows in short supply now, I doubt it, but the possibilities are nearly limitless. Nobody with the actual details wants to go the route of Ms. Parrish.
    The storyline, ‘Apple Delivers Record Number of New iPhones Worldwide Despite Global Chip Shortage’ will never appear on any news site except maybe The Onion.

    October 19, 2021
  3. Robert Paul Leitao said:
    PED: Was there any mention of Services revenue expectations in the note?

    October 19, 2021
  4. Michael Goldfeder said:
    While his analyst note offered nothing more than the usual diatribe in an effort to tamp down the Apple M-1 chips and their tremendous performance in a laptop, it wasn’t until his last line that he threw in one of those overused, stale, and worn-out words that negated any legitimacy he had to offer; “Headwinds!” The adjective constantly being utilized by the unenlightened!

    October 19, 2021
  5. Robert Paul Leitao said:
    My read is he’s expecting an exceptional March quarter performance based on supply constraints and without constraints on consumer demand. He’s not ready to nail down March quarter estimates in mid-October. I urge patience for investors now and to look to 2022 for a strong share price performance relative to the broad market. We’ve been here before. My question is: Will management be ready to issue more defined guidance in January following December quarter results?

    October 19, 2021
    • Bart Yee said:
      @Robert I believe Apple management will again withhold quantitative numeric guidance for Q1 and Q2 2022 citing ongoing uncertainty regarding global economic recovery, COVID effects on demand AND supply, the ongoing (external) chip and parts shortages, and mild inflation and moderate forex effects. IMO, there is no need to provide guidance when there are so many issues which could affect revenue.

      What I do KNOW Tim and Luca will say is:
      1) demand for Apple products and hardware in the 4th quarter was robust and that demand was gratifyingly solid one month into the December quarter. “We are producing products as fast as possible so that we can get them into the hands of our users as quickly as we can. We strongly appreciate Apple users’ patience and anticipation of their deliveries this quarter.”

      2) “While there still still may be some imbalances in the worldwide supply chain, we are working diligently to mitigate their effects and minimize their impacts on deliveries to waiting customers.”

      3) “I’m still paying more for freight shipping than I’d like to. But we have been able to hold the line on prices with a few exceptions”

      4) “in response to the EU and negotiated minimum international tax regulations recently enacted, we anticipate our tax rates to be 15% for Q1”.

      5) “We anticipate strong double digit growth in iPhone, Mac and Wearables. We anticipate double digit growth in iPads subject to some possible supply pressures. We anticipate a return to double digit growth in Services after the recent seasonal growth slowdown in Q4 buoyed by Subscriptions, App Store and Other services.”

      6) “We see continued strong demand for products and services in the US, EU and China. We continue to see growth in Rest of Asia and Japan, especially in India where we expect to see record demand and sales.”

      Did I miss anything?

      October 20, 2021
      • Robert Paul Leitao said:
        Bart: Thanks for the thoughtful (and thorough!) response. I don’t need much in terms of guidance for my interests, but sell-side analysts will be looking for more definitive guidance from management before becoming more ambitious on their price targets and recommendations. I can wait another quarter while free cash flow rises and more shares are repurchased near the current trading range. I’m bullish and patient.

        October 20, 2021

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