The market’s distrust of Big Tech is showing no signs of letting up this month as names like Apple, Amazon and Microsoft continue to lose ground amid worries over the economy, rising interest rates and higher inflation, all of which are playing into a generally more defensive mood among investors
Tech bigwigs like FAANG and MAMAA still make up an outsized percentage of the overall market, but their future growth is being questioned. The noise in Apple is around manufacturing. A $4 to $8 billion hit to revenue is expected in the current quarter due to supply disruptions and materials shortages, according to a report last month.
Apple reported its fiscal second quarter 2022 financials which beat on top and bottom lines, showing revenue up almost nine per cent year-over-year to 97.28 billion versus the consensus call of 93.89 billion and earnings per share of $1.52 per share versus the Street’s forecast
The chill came in the company’s conference call where CFO Luca Maestri pointed to the likely drop in sales.
The revenue performance during the June quarter will be impacted by a number of factors. Our ability to meet customer demand for our products is being impacted by supply constraints caused by COVID-related disruptions and industrywide Silicon shortages. The constraints are expected to be in the range of $4 billion to $8 billion, which is substantially larger than what we experienced during the March quarter. Maestri said on the conference call that the disruptions are having an impact on customer demand.
Since hitting a high of $182 in early January, Apple’s stock is down about 23 per cent, which is par for the course or even a bit better than most tech names in 2022. The S&P 500 is down 17 per cent while the NASDAQ is down 28 per cent.
Harris says investors can rest easy because Apple has already baked into the share price any concerns about getting products into customers’ hands.
Harris said that Apple is a company they have owned for a long time. I think that one of the things that Apple has done well is its use of free cash flow to buy back its shares, even though it is trading at 21x earnings now.
They said they were going to have a problem with iPhone deliveries this quarter, but they were just pushing forward that number down the road. I think the phone will work. I think they have grown Services well over the last few years. The things that I use right now, like the earphones, have done incredibly well.
For the recent fiscal Q2, Apple had revenue of $50.570 billion, of which 50.570 billion was attributable to the popular iPhone. It had a Mac line of $10.435 billion, an iPad line of $7.646 billion, and Wearables, Home and accessories of $8.806 billion. Apple’s Services revenue, which is comprised of businesses such as AppleCare, Payments, Cloud Services and digital advertising, reported quarterly revenue of $19.822 billion, up from $16.902 billion a year ago.
Sales in the Americas were the only bright spot in Apple’s second quarter, where they went from $34.306 billion a year ago to $40.884 billion. Europe sales were up about $1 billion to $23.287 billion, while Greater China sales were up half a billion dollars, and Japan and the Rest of Asia Pacific were relatively stagnant.
Buying into the current market is hard, but investors might be able to pick some good entry points.
Apple may have a couple of quarters that are going to be difficult because of supply chain issues, but that’s nothing to do with their products, which are very good and they’re selling very well We own it and we think it is worth buying here.
Apple has given them good guidance about what they will see. With this kind of volatility, you can always buy these things cheaper, but I think people have discounted all that stuff already about how Apple is going look, but I think on a bad volatility day, you can pick it up and own the company, own a great business.