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Apple has a little time on its side

Sometimes, cyclicality works in Apple’s favor.

The tech giant that makes iPhones, iPads and Mac computers is well accustomed to slow summers. The third fiscal quarter ending in June is typically the company’s weakest in sales, thanks mostly to its pattern of launching new iPhones in the fall. And this year’s June quarter may be even weaker, given Covid-driven lockdowns in China that have shuttered some of the factories that produce Apple’s products.

The company warned investors during its second-quarter earnings call late Thursday that such constraints could clip revenue in the June period by a range of $4 billion to $8 billion. Apple still doesn’t give an actual revenue forecast—a practice that seems to have died with the onset of the pandemic—but analysts reduced their projections for the June quarter by about 3% on average. Wall Street now expects about $83.5 billion in revenue for the quarter, which would be a gain of 2.5% from the same period last year.

It was a downbeat bit of news following an otherwise strong report. Apple’s revenue and operating earnings for the March quarter both grew 9% year-over-year—beating Wall Street’s targets. The latest iPhone 13 models are still selling well—despite challenging comparisons with a major upgrade cycle last year. And the Mac is booming, driven by a strong upgrade cycle to machines with Apple’s new in-house chips. Mac revenue surpassed $10 billion for the second straight quarter and beat analysts’ forecasts by 14%. Analysts now expect the Mac to hit nearly $40 billion in revenue this fiscal year—a significant bump for a segment that has historically averaged about $25 billion in annual revenue.

Still, the warning for the current quarter was a sharp reminder that the world’s most valuable public company is not immune to adverse forces affecting the world. And Apple is still highly leveraged to China, where the bulk of its products are manufactured. Chief Executive Tim Cook said on Thursday’s earnings call that “almost all of the affected final assembly factories have now restarted.” More shutdowns could pose some risk to this year’s new iPhone models expected to come out in the fall. But Chris Caso of Raymond James says builds on new models typically don’t start until August, which gives Apple some breathing room in getting its factories back on line.

It also helps that Apple has been here before. Lockdowns at the onset of the pandemic delayed the launch of the iPhone 12 models in late 2020 by about a month. But those devices still managed to spark a very strong upgrade cycle, with iPhone segment revenue surging 39% for the fiscal year ended September of 2021. Projections were already much more modest for this year and next, in keeping with longer replacement cycles for pricier iPhones. Apple’s slow summer could still have a bright ending.


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