Why Apple’s supply crunch might not be that bad

Apple Inc. It expects to face billions of dollars in supply chain impacts during the current quarter, but analysts are not sweating the last words of caution from the smartphone giant.

While Apple AAPL,
Exceeding expectations with its latest quarterly results on Thursday, the company warned that it expects supply chain challenges to have a negative impact of $ 4 billion to $ 8 billion during the June quarter, “substantially greater” than the which was seen during the March period. Apple now has to deal with the aftermath of recent COVID-19 plant closures in China, as well as the global chip shortage that has plagued it in recent periods.

Read: Apple’s stock changes at a loss after executives warn of billions of added costs

Apple shares fell in out-of-hours operations on Thursday after executives issued a supply chain warning on the company’s earnings call, but rose 0.8% shortly after of Friday’s opening, as analysts said they weren’t too worried about supply chain temporary problems. .

“Production issues should be transient, and they occur at the best possible time of year during the weakest seasonal period before the fall releases,” wrote Raymond James analyst Chris Case. “We think that makes September a good time for China to return to normal.”

Although Caso saw supply chain problems as a temporary problem, he said he was more concerned about the impacts of exchange trends and the suspension of Russia’s business on Apple’s revenue. He suggested that Apple “may need to raise prices in local currency when new products are launched in the fall, if exchange rates do not change by then.” In the past, such price increases have slowed demand for units, he continued.

Still, Caso is optimistic about Apple’s actions, reiterating a higher performance rating and a $ 190 price target after the report.

Citi Research analyst Jim Suva admitted that Apple’s prediction of new supply challenges was “not positive”, although he considered it a “good” issue because demand materially exceeds supply. Apple’s installed base continues to grow. ”

“For those who argue that demand is declining and want to be negative in stock, we point out long product delivery times, no compelling competitive replacement products and a growing installed base of Apple that will result to future service revenues, which are more profitable than product revenues, “continued Suva, who has a purchase rating and a $ 200 share goal.

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Jefferies analyst Kyle McNealy offered that Apple’s expectations for the June quarter were not “as bad as they initially seemed.”

According to his math, after making some assumptions, Apple’s targeting is between $ 82.1 billion and $ 87.7 billion in revenue for the June quarter, which translates to $ 84.9 billion at the midpoint. That average was about 2 percent below the consensus estimate of $ 86.3 billion for June and translates to about $ 1.19 in earnings per share, according to his calculations, which was below the figure $ 1.24 consensus.

“Overall, that’s not so bad considering that before printing, the options involved a 2.3% downward move of stocks and probably a low-digit loss of earnings,” he wrote. McNealy has an Apple stock purchase rating and a target price of $ 200.

See also: Amazon seeks to reduce costs after the first loss in seven years lowers inventory

Wamsi Mohan of Bank of America added that the wide range that Apple offered when estimating supply chain headwinds suggested “conservatism” in the company’s outlook.

Shares of Apple have lost 4% in the last three months as the Dow Jones Industrial Average DJIA
has dropped by about 3%.

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