IPhone delays threaten Apple rally before the festive season
Wait times for Apple’s most expensive smartphones are rising to what analysts say are record levels as the holiday shopping season starts, threatening to curb sales at the company’s busiest time of year and derail a rally in the stock.
Customers in the US who placed an order on Tuesday would get an iPhone 14 Pro delivered in New York on December 30, after Christmas, according to Apple’s website. The wait was about 34 days last week, near the highest yet, according to UBS Group.
The delays, resulting from Covid-19 lockdowns around a Chinese plant run by a contract manufacturer of iPhones, could cause analysts to trim their earnings estimates for this quarter, which accounts for 35%40% of iPhone unit sales. That could put further pressure on Apple’s stock price, which has been a haven in this year’s tech meltdown.
“This could cause some further headwinds for Apple,” said Matt Maley, chief market strategist at Miller Tabak. Consumers’ finances are stretched because of rising food and energy prices, which “will almost certainly cause the consumer to pull in their horns after the holidays. If that is the case, it’s going to be tough for Apple to make up any lost holiday sales next year”.
An Apple spokesperson said he did not have any immediate comment on the wait times.
If wait times do not improve over the coming weeks, unit sales could miss estimates, resulting in iPhone revenue coming in flat year on year instead of rising about 2% as expected by analysts, according to UBS’s David Vogt.
Jefferies analyst Kyle McNealy assumes about three weeks of disruptions and estimates that each week of lockdown will cut $1bn from revenue and 1c from earnings per share. Evercore ISI’s Amit Daryanani estimates this could push out about $3bn of iPhone revenue into the March quarter.
RARE UPDATE
For bulls, that might be the bestcase outcome. “We don’t believe those will be necessarily lost orders,” said Mark Stoeckle, Adams Funds CEO. “We think they’ll be delayed orders.”
The disruptions forced Apple to provide a rare update only 10 days after the California-based company reported its financial fourth quarter earnings at end-October. It said shipments of the new premium iPhones will be lower than expected because of the lockdowns.
The timing could not have been worse for Apple. The stock has jumped 9.7% since a November 10 report showed US consumer inflation was cooling a bit. That triggered a rally across tech stocks as investors took the view that the Federal Reserve might be able to soon slow its pace of interest rate increases. Apple, which had already impressed Wall Street with its earnings, added $191bn to its market value in a single session, the most yet by a US company.
“Apple relative to the other names still offers safety,” said Lewis Grant, portfolio manager at Federated Hermes.
Grant said he takes solace in the fact that Apple is not entirely reliant on hardware, since the company can tap into a stream of recurring revenue from subscriptions to services such as Apple Music and Apple Arcade for video games.
Analysts have cut their average Apple revenue estimate for this quarter by 1.7% over the past three months, compared with reductions of 2.6%-6.5% at peers such as Microsoft, Alphabet and Amazon.com.
While the iPhone remains the cash cow for the company, Apple has been trying to expand sales elsewhere. To spur Mac sales, it launched a rare promotional deal for small businesses that buy computers in bulk, an effort to cope with a slowdown during the holiday quarter.
“As long as the issues are supply related, it’s OK, it’s manageable,” said Alec Young, chief investment officer at MAPsignals. “If there’s any hint of weakening demand, the stock price would be much more vulnerable. The market tends to be forward looking. So, it’s much more sensitive to demand destruction given all the concerns about a recession.”