The main factors that would contribute to Apple’s financial underperformance this quarter would be the COVID-19 lockdowns in China that affect Apple’s assembly lines, the loss of the Russian market due to sanctions, the currency exchange misallocations, the rising inflation rate that leaves buyers with less and less disposable income, and the general component supply shortages that have been plaguing the industry for a good while now.
Apple posted a strong March quarter, but commentary implied incremental weakness in June driven by currency, the loss of Russia revenue, and the most significant impact coming from production issues driven by China lockdowns. We assume revenue of ~$81B take these factors into consideration. The production issues ought to be transitory – and they occur at the best possible time of the year during the weakest seasonal period ahead of fall launches. We think that sets September up well assuming China normalizes. We, however, consider FX and Russia to be more permanent, and now fear that Apple may need to raise prices in local currency when new products launch in the fall, if exchange rates don’t change by then. When that’s happened in the past, rising local prices have a negative effect on unit demand. Finally, Services are expected to grow but decelerate y/y, something we think that’s been anticipated but remains a factor.
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