"The bigger focus will be Sept-qtr guide... given a challenging f/x environment and evolving macro situation." -- Analyst Amit Daryanani
From a note to Evercore clients that landed on my desktop Wednesday:
ALL YOU NEED TO KNOW: While investors continue to worry about impacts from high inflation to iPhone demand, we think AAPL has guided June-qtr conservatively enough that despite the mixed data points we should see another beat (though perhaps more modest vs. prior ones) for June-qtr. The bigger focus will be Sept-qtr guide that we suspect could qualitatively be below current expectations given a challenging f/x environment and evolving macro situation. While we are maintaining our June-qtr expectations we are lowering our Sept-qtr estimates to $88B/$1.28 (street at $90.3/$1.32); our updated model implies 7% q/q growth (vs. historical seasonality of 13%). Recent data points have been fairly mixed though skewing somewhat more negative:
- Weak Chinese smartphone data (-9%),
- App Store deceleration to ~4% growth,
- Micron and others flagging weakness in smartphone/PC demand.
- Foxconn Update was a key positive data point with Foxconn reporting strong June sales (+30%) and raising its full year guidance,
- F/X dynamics – we estimate f/x could be a 100bps headwind to model going forward vs. initial expectations.
We think Apple’s messaging on June-qtr revenue was sufficiently conservative to enable Apple to at minimum meet street numbers that are looking for ~1.4% growth. Apple did not provide June-qtr revenue guidance but they did flag multiple headwinds... Apple has tended to overestimate supply headwinds over the past few quarters, so we think it is possible the supply and FX issues are less severe than Apple assumed. It is unlikely Apple will choose to provide a Sept-qtr revenue guide, but we should get some qualitative commentary.
Consensus is currently looking for Apple to bounce back to high single digit growth, which looks reasonable given supply issues should ease as China reopens. Investors are becoming more worried about the demand side of the equation, but even if demand falls off there should be a solid 1-2 quarters of channel fill with inventories currently sitting pretty low.
Net/net: We are relatively neutral this quarter as we think Apple is contending with numerous headwinds, but these risks should be adequately understood and reflected in expectations.
Maintains Outperform rating and $180 target.
My take: The headwinds are real, but Apple tends to sail through them better than the rest.