Investors are reacting negatively to weak guidance brought on by supply-chain pressures
Supply constraints could constrain revenue growth in Apple's Mac business.
Investors had come to view Apple's stock as a port in the storm of artificial-intelligence uncertainty, but the company's latest earnings report showed it's not immune to AI pressures.
Apple's stock $(AAPL)$ was down 9.3% in morning trading Friday, on track to post its most negative one-day reaction to earnings in more than a decade. While the company saw strong traction with its Mac and iPhone businesses in the most recent quarter, it's feeling the sting of high memory prices - and the problems could linger.
Don't miss: Apple's iPhone and Mac demand has been so strong that the company is now in a bind
The company acknowledged on Thursday that cost pressures and supply-chain issues are expected to weigh on margins. Apple anticipates a 47% to 48% gross margin for the September quarter, with about 1 percentage point of positive contribution from tariff refunds. That implies margin compression from the roughly 50% level seen in the June quarter, which reflected about 2 percentage points of positive impact from tariff refunds.
"We're seeing some very significant constraints currently with limited flexibility in the supply chain to remedy it," CEO Tim Cook said on the earnings call.
Evercore ISI analyst Amit Daryanani wrote in a note to clients that he and his team "understand investors will struggle" with the company's margin trajectory for the second half of the year, though he thinks Apple's outlook may be conservative as there are various ways the company could try to relieve itself of some margin pressure.
Among them, Apple could raise iPhone prices when it launches its new lineup in the fall and realize "minimal demand degradation" thanks to a new leasing program that aims to make devices more affordable even if headline device prices rise.
"We worry about rising memory cost pressures but see Apple's position as unrivaled," Bernstein's Mark Newman added in a note to clients.
That said, Apple is also suffering from supply constraints that could eat away at revenue opportunities in iPhones, iPads and especially Macs. Apple's revenue outlook suggests growth of 9% to 11% in the September quarter, below the 12%-plus growth outlook that had been implied by the FactSet consensus.
"It is worth noting this is partly Apple suffering from their own success, as much of the constraint is due to Apple under forecasting demand and their strong iPhone, and especially Mac sales required them to pull forward supply of advanced nodes," D.A. Davidson analyst Gil Luria wrote in a note to clients.
If it holds through Friday's close, Apple's stock decline could be its worst post-earnings reaction since shares lost 12.4% on Jan. 24, 2013, according to Dow Jones Market Data. The stock is also pacing toward its worst overall drop since March 16, 2020, when it fell 12.9%. The decline could erase $460 billion from the company's market capitalization.
Apple shares are up 11% on the year even with Friday's drop.
-Emily Bary
Comments