Apple has some time on its side

Tim Cook says almost all of the final assembly plants disrupted in China have been restarted.


Photo:

brooks kraft / Agence France-Presse / Getty Images

Sometimes cyclicality works in Apple‘s

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favor.

The tech giant that makes iPhones, iPads and Macs is well accustomed to slow summers. The third fiscal quarter, ending in June, is typically the company’s weakest in sales, largely thanks to its pattern of launching new iPhones this fall. And this year’s June quarter may be even weaker, given Covid-driven shutdowns in China that have closed some of the factories that produce Apple products.

The company warned investors during its second-quarter earnings call late Thursday that such restrictions could cut earnings in the June period by a range of $ 4 billion to $ 8 billion. Apple still does not provide an actual revenue forecast – a practice that appears to be dead by the start of the pandemic – but analysts reduced their June quarter forecasts by about 3% on average. Wall Street now expects about $ 83.5 billion in revenue for the quarter, which would be a gain of 2.5% over the same period last year.

It was disappointing news after an otherwise strong report. Apple’s revenue and operating earnings for the March quarter both grew by 9% year-over-year, beating Wall Street’s target. 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 internal chips. Mac revenue exceeded $ 10 billion for the second consecutive quarter, beating analysts’ forecasts by 14%. Analysts now expect the Mac to reach nearly $ 40 billion in revenue this fiscal year – a significant bump for a segment that has historically had around $ 25 billion in annual revenue on average.

Still, the warning for the current quarter was a stark reminder that the world’s most valuable public enterprise is not immune to negative forces affecting the world. And Apple is still heavily geared towards China, where the majority of its products are manufactured. CEO Tim Cook said on Thursday’s earnings call that “almost all of the affected final assembly plants have now been restarted.” Multiple shutdowns could pose some risk for this year’s new iPhone models, which are expected to be released this fall. But Chris Caso of Raymond James says construction on new models typically doesn’t start until August, giving Apple a respite from getting its factories back online.

It also helps that Apple has been here before. Lockouts at the start of the pandemic delayed the launch of the iPhone 12 models in late 2020 by about a month. However, these devices still managed to trigger a very strong upgrade cycle, with the iPhone segment’s revenue increasing by 39% for the fiscal year ending September 2021. Projections were already much more modest for this year and next, in line with longer replacement cycles for more expensive iPhones . Apple’s slow summer may still have a bright ending.

Beijing is in the race to test more than 20 million people, while residents are struggling to supply themselves with food. WSJ’s Jonathan Cheng shows what life is like in the capital and unpacks the likely ripple effects if officials are unable to control the rapidly spreading virus. Photo: Kevin Frayer / Getty Images

Write to Dan Gallagher at dan.gallagher@wsj.com

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