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Apple holiday quarter may face pressure from inflation and weak demand in China

Apple holiday quarter may face pressure from inflation and weak demand in China

Oct 24 (Reuters) – Apple Inc (AAPL.O) Thursday’s earnings report may show the best quarterly growth in iPhone sales this year, but it could still portend a difficult holiday period as demand in China slows and inflation hits multi-decade highs.

Analysts expect iPhone sales to rise 11% in the fourth quarter of the fiscal year ending in September, according to Refinitiv, thanks to consumers upgrading to the company’s premium Pro phones. However, growth is estimated to slow to just 2% in the crucial holiday quarter.

The early days of the iPhone 14 product cycle indicated weak demand for basic models and a strong appetite for high-end variants, said Dan Morgan of the Synovus Trust.

Morgan added that he expects “a weaker consumer spending environment to affect the earnings trajectory.”

The latest earnings season showed that even global tech giants, including Google’s Alphabet Inc. (GOOGL.O)are not immune to macroeconomic stresses as a strong dollar becomes a drag on their growth and companies pull back from spending. Read more

Reuters graphics

Analysts believe Apple’s move to leave prices unchanged on its latest Pro models is driving strong demand. The models also target affluent shoppers who are less prone to inflation.

“The iPhone 14 Pro series has improved specifications, but unit prices are the same as last year’s models, which makes pre-orders for the Pro series very popular,” said market research firm TrendForce.

Context

Analysts expect Apple to provide “guidelines” or an indication of how to sell the iPhone 14 rather than a financial forecast.

The holiday quarter is usually Apple’s largest and accounts for about 30% of its annual revenue, since it launched iPhones and Macbooks before the shopping season.

Macbook sales are expected to fall 5% in the quarter, after a potential rise of about 2% in the quarter ending in September.

“We are concerned that Apple may have been a beneficiary of the coronavirus, amid work/home learning and robust consumer spending, which could reverse, particularly with changing consumer spending priorities and potential demand pressure rising rates,” Bernstein analyst Tony Sakunagi said.

The focus will be on Apple’s services business, with revenue set to rise 10% in the fourth quarter, as the company looks to order the streaming service. Although Apple TV has been a huge success, it lacks the viewership of competing platforms like Netflix Inc. (NFLX.O).

The basics

* Fourth-quarter revenue expected to grow 6.7% to $88.9 billion; First-quarter revenue is expected to grow 3.6% to $128.38 billion, the slowest holiday quarter growth since the pandemic.

* Analysts expect fourth-quarter earnings of $1.27 per share

Wall Street Morale

* Of the 43 analysts covering stocks, 37 rate them as ‘buy’ or higher, 5 as ‘hold’ and 1 as ‘sell’.

The stock is down about 16% this year but still outperforms others in the trillion-dollar club as well as at FAANG.

Apple is doing better than other high-growth tech stocks, Apple’s prices are better than other high-growth tech stocks

(Nivedita Balu reports in Bengaluru); Editing by Anil de Silva

Our criteria: Thomson Reuters Trust Principles.



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