Apple may submit third-best quarter ever as Wall Street worries about consumer decline

Apple Inc.

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may send one of its best quarters in its 46-year history on Thursday. But investors will follow CEO Tim Cook’s comments closely for signs that the iPhone maker is seeing declining demand among high-end buyers amid high inflation, Covid-19 lockdowns in China and the war in Ukraine.

“We believe this report is more important than usual for the overall market sentiment given increased focus on consumer spending and whether the higher end consumers may be weakening,” Rod Hall, analyst at Goldman Sachs Group Inc., told investors in a note in this week.

For weeks, analysts have lowered their expectations for the period January to March, averaging a total revenue of $ 94 billion, or 4.9% more than a year earlier, according to FactSet. Earnings per stock may rise to $ 1.42 from $ 1.40 a year earlier and set a record for Apple’s second-quarter financials.

Such sales results would be in line with Apple’s guidance in January, when the company predicted a record for the March period, although it grew at a slower pace compared to the previous quarter – which included the Christmas holidays – where the company marked all-time high revenue and earnings thanks to the latest iPhones, Macs and iPad tablets.

A quarter of $ 94 billion in revenue would rank as Apple’s third best in history, but one of its slowest growth since the pandemic began more than two years ago. The company has experienced double-digit growth year-on-year every quarter since the launch of the first iPhone with 5G capacity in October 2020.

Daniel Morgan, a senior portfolio manager focusing on technology at Synovus Trust Co., which counts Apple among its largest holdings, called supply chain problems, Covid-19 and inflation “the street’s biggest concerns” for the current quarter. Bernstein Research analyst Toni Sacconaghi reiterated this sentiment in a note this week, predicting solid quarterly results and asking, “But what then?”

Mr. Cook had said he expected the effects of supply chain challenges to improve in the March period compared to the last three months of 2021, when Apple estimated it lost more than $ 6 billion in sales due to inventory constraints.

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But his optimism came before the pandemic flared up again in Asia and war broke out in Europe. Apple suppliers in China have this month been hit by severe government lockdowns aimed at limiting the spread of Covid-19. Loup Funds estimates that 85% of Apple’s products are concentrated in China, while the region accounts for almost 20% of the company’s annual sales.

In January, Chief Financial Officer Luca Maestri warned that the March quarter would face an unusual comparison the year before. iPhone sales were more robust than usual in the comparable period of 2021 because pandemic-related delays disrupted the typical fall launch and pushed sales back. Total sales a year earlier increased 54%.

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Analysts expect sales of iPhones to rise 1% to $ 48 billion in the most recent quarter compared to a year earlier. The company no longer reports device sales for the smartphone, which account for about half of Apple’s annual revenue.

These sales may have benefited from strong demand in China, where the latest iPhones have resonated with consumers, analysts said. They have attributed something of an expected decline in iPad sales to Apple prioritizing iPhone production during the period. Sales of the iPad may have fallen 8.3% to $ 7.15 billion, while the Mac computer line is expected to be flat at $ 9.15 billion.

In the midst of declining device sales, digital content sales are likely to get more attention. Analysts expect the so-called service segment – which includes iTunes and App Store sales – to grow 17% to $ 19.7 billion in the three months to March.

Mr. Maestri said he expected the company’s so-called service segment to experience strong double-digit growth, even as the growth rate will be slower than in the December quarter, as Apple again faces tougher comparisons from a year earlier, when more severe shutdowns were boosting sales. digital content.

Write to Tim Higgins at Tim.Higgins@WSJ.com

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