Saturday, May 28

Apple Q1 Earnings Preview: Supply Chain Shortages to Affect Sales, Profits

world power of technology Apple (NASDAQ:AAPL) will report earnings for the first quarter of fiscal 2022 on January 27. The company has been one of the main beneficiaries of the coronavirus pandemic, as people spend more time than usual at home.

Sales and profits have increased, but now Apple is grappling with a new challenge from the pandemic: constrained supply chains.

A person on their laptop.

Image source: Getty Images.

Apple is struggling to meet demand

In its fiscal fourth quarter, ended September 25, Apple reported revenue of $83.4 billion. That was 28.9% higher than the $64.7 in sales for the same quarter last year. But that doesn’t tell the whole story of how strong customer demand was for Apple’s products and services in the fourth quarter. Management noted that it could have sold $6 billion more in products had it not been for supply shortages. As strong as Apple’s fourth-quarter sales were, they could have been 7.2% higher.

The limitations were felt across the entire spectrum of Apple products. It was not the case that a popular new product was sold out, and everything else was abundantly available. That has been the case for Apple since the start of the pandemic: customers buy all of its products. In its latest fiscal quarter and year, sales grew in all four product categories (iPhone, Mac, iPad, wearables).

The first quarter of Apple’s fiscal year 2022 will consist of its most lucrative Christmas sales season yet. Unfortunately, Apple is not expected to have resolved the supply shortage in time. CFO Luca Maestri discussed the impact of supply constraints on Apple’s fourth-quarter earnings release conference call: “As we mentioned earlier, during the September quarter, supply constraints affected our revenue by around $6 billion. We estimate the impact of supply constraints will be greatest during the December quarter. Despite this challenge, we are seeing strong demand for our products and expect to deliver very strong year-over-year revenue growth and set a new revenue record for the December quarter.”

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What this could mean for Apple investors

Wall Street analysts expect Apple to report revenue of $118 billion in the first quarter and earnings per share (EPS) of $1.89. If Apple hits the EPS projection, it would be 12.5% ​​higher than the same quarter last year.

The year-over-year growth estimates are the lowest for Apple in the previous four quarters. Investors are already anticipating the impact of supply chain shortages and have lowered the bar for the first quarter. Therefore, management comments on supply chain effects for the coming quarters are more likely to move Apple stock.

If management says something along the lines of what CFO Luca Maestri noted earlier (the problem is getting worse), Apple’s shares could drop in the short term. Regardless, Apple is an excellent company that supports customer demand through innovation. Short-term problems, such as supply chain constraints caused by the pandemic, are not a reason to sell Apple stock.

This article represents the opinion of the writer, who may disagree with the Motley Fool premium advice service’s “official” recommendation position. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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