Thursday will mark Apple's first decline in revenue since 2019

As Apple prepares to report earnings on Thursday, analysts believe this will be the company's first decline in revenue over the same quarter last year since it announced its March quarter earnings. Several factors have contributed to this problem.

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There were not enough iPhones to meet the demand when the company's primary assembly facility in China was shut down for weeks during the Covid lockdowns, resulting in a shortage of high-end iPhones. In many regions of the world, customers noticed as early as November that Apple could not promise a new iPhone to be delivered in time for Christmas.

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In early September, Apple gave investors a rare warning by informing them that production issues would mean that shipments would be lower than "previously anticipated." This was a fact that prompted many analysts watching the stock to slash their estimates.

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Wait times for the 14 Pro and 14 were at an extreme level in early to mid-November, when the impact of the disruptions was most evident (link), as the US wait times reached their highest level. Pro Max reached 34 days and 40 days, respectively. days while waiting time in China at the high-end hit 36 days,” according to UBS analyst David Vogt.

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As per Refinitiv's poll, analysts believe Apple will report revenues of over $121 billion during the fourth quarter of this year, which would be a slight decline from a year ago when Apple had revenues of $123.9 billion.

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In spite of this, the problems are not specific to Apple. Consumers and businesses are facing a slump in PC and smartphone sales as a result of the pandemic and will be cutting costs to prepare for a potential recession as a result of the pandemic.

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According to IDC, smartphone shipments decreased by 18% in the fourth quarter, the biggest decline in IDC's history. PC sales declined 28% in the fourth quarter, according to the company. Investors, however, believe that Apple has outperformed its competitors in a market that is contracting.

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Although consumer demand remains a concern in the near term, Morgan Stanley analyst Erik Woodring wrote earlier this month that the underlying drivers of Apple's business model - an expanding installed base and higher spending per user - remain intact and that the ecosystem's strength and stability remain undervalued.

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Refinitiv consensus estimates tell us what Wall Street expects:

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• Amount of revenue: $121.19 billion
• Shareholders' earnings: $1.94
• Revenue from iPhones: $68.29 billion
• Revenue from iPads: $7.76 billion
• Revenue from Macs: $9.63 billion
• Revenue from other products: $15.26 billion
• Revenue from services: $20.67 billion

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Quarterly guidance for Apple

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As part of the uncertainty caused by the pandemic, Apple has not given any guidance since 2020. In spite of this, the company usually provides a few data points that can give analysts a general idea of how the company is doing.

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After an improvement in supply, investors are wondering if the shortage of iPhone 14 Pro models in the December quarter will drive demand in the March quarter.

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Consensus estimates indicate that sales will reach just over $98 billion in the March quarter, indicating a slight increase over last year.

As Morgan Stanley's Woodring wrote last week, "While we understand that Apple's March quarter revenue is expected to decline at a less-than-seasonal rate because iPhone demand has been pushed from the December quarter to the March quarter," the consumer electronics spending backdrop remains challenging, with tablets, PCs, and more discretionary items (i.e. wearables) all facing continued demand headwinds..”

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Apple could, however, signal to investors that its March quarter will be slow if consumer confidence erodes amid higher interest rates and shrinking savings.

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“Even though we do not expect Apple to revert to the detailed guidance that used to accompany Apple's earnings before the Covid acquisition, we do expect the commentary to be cautious regarding the demand for the company's products across the board,” UBS's Vogt wrote.

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The company's services business, which has been growing strongly for years, might be a silver lining for investors looking for a silver lining if management commentary is soft. As a result of several data points in the fourth quarter, including Apple's own App Store payouts, there appears to be a significant slowdown in App Store growth, although analysts are split as to the severity of the slowdown.

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There are other parts of the business besides the App Store, such as online subscriptions, warranties, and licensing fees for search engines. As Apple Music and Apple TV+ generate a larger percentage of Apple's revenue, Apple shares could climb, D.A. Fore wrote in January.

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In the December quarter, Refinitiv estimates that services revenue will total $20.67 billion, representing an increase of 5.9% over the same period in the prior year.

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Analysts will also be watching to see if Apple's sales abroad continue to suffer due to the strong dollar since so much of Apple's business comes from overseas. There was a decline in the value of the British pound, the Canadian dollar, and the Japanese yen in the fourth quarter when compared with the dollar. In the past, Apple management has claimed that the strong dollar would have a negative impact on sales growth by 10 percentage points.

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