Apple Q3 2022 earnings preview: Macroeconomic concerns dominate

Tim Cook, chief executive officer of Apple Inc., speaks during the Apple Worldwide Developers Conference at Apple Park campus in Cupertino, California, US, on Monday, June 6, 2022.

David Paul Morris | Bloomberg | Getty Images

Apple reports earnings on Thursday for the quarter ended in June.

The third quarter of Apple’s fiscal year is typically the company’s smallest by sales. The quarter is in the back half of the iPhone’s annual refresh cycle as investors start to look forward to the release of a new model, which boosts sales starting in late September or October.

This year, analysts and investors will be closely watching Apple’s earnings in the face of many new macroeconomic trends, including declining consumer confidence, rising interest rates, and decades-high inflation.

So far, Apple’s sales have remained strong, partially because its customers are a fairly well-off group. But any signs that people are putting off Mac and iPhone purchases because of inflation or recession fears could have implications for the whole economy.

Apple also has significant exposure to China, both as a market to sell its products and as the country where most of its products are assembled. Several Apple factories in China had production shifted or suspended at times during the June quarter because of Covid lockdowns.

Analysts polled by FactSet expect Apple to report $82.8 billion in sales, which would be under 2% growth from the same quarter last year and the slowest growth quarter since the start of the pandemic.

Analysts are also expecting $1.16 in earnings per share, which would be a 10.7% decline on an annual basis. Gross margin will also decline from 43.7% last quarter — high for Apple historically — to between 42% and 43%, the company said in April.

Supply issues and China lockdowns

In April, the story for Apple wasn’t about demand: it was about supply. “Right now, our main focus, frankly speaking, is on the supply side,” Apple CEO Tim Cook told analysts.

Apple warned of a $4 billion to $8 billion revenue hit stemming from supply issues, including chip shortages and production snags. Some analysts say that Apple will signal that it managed the supply chain well and the revenue hit will end up on the low-end of Apple’s guide.

“We believe the company has managed its supply chain better than it planned a quarter ago, while it continued to gain share in an otherwise difficult quarter for smartphones and PCs,” Deutsche Bank analyst Sidney Ho wrote in a recent note.

That could be good for iPad sales, which have taken a hit in the past few quarters as Apple prioritized parts for iPhones and other products.

“We also anticipate improving iPad sales in part due to improving supply and believe Apple’s $4 billion to $8 billion supply headwind commentary for the June quarter was more likely at the lower-end of this range,” Canaccord Genuity analyst T. Michael Walkley wrote in a note this month.

Apple has grappled with shutdowns in urban China, including in Shanghai. Covid restrictions could have hurt Apple’s iPhone sales in China early in the quarter, but could have charged sales in June as people left lockdown ready to spend.

Analysts polled by FactSet predict that Apple’s…

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