To The Moon

Q&A（Question-and-Answer Session）is a session after the company's prepared remarks where institutional investors and analysts ask management questions. In this dialogue, you may find some valuable information that might affect the stock price in the following weeks.

Now let's look at some key points from $Apple(AAPL)$ Q2 FY2022 Q&A Session Transcript

Question-and-Answer Session

Q：Yes. Thank you. Congrats on the quarter. A couple of macro-related questions, just given everything that's going on in the market, the first is on how you're thinking about consumer spending, as we see more stock market volatility, rising interest rates, inflation.

What metrics are you watching either internal to your business or external at the macro level to understand whether you'll ultimately start to see some demand impact particularly on the product side of your business? And then, I have a follow-up.

A：Katy, hi, it's Tim. We're obviously monitoring our daily sales very closely. From an inflation point of view, we are seeing inflation. It is or was evident in our gross margin last quarter and in our OpEx last quarter and it is assumed in the guidance that Luca gave for this quarter as well. So we're definitely seeing some level of inflation that I think everybody is seeing.

Q：And how are – just as a follow-up to that how are you thinking about how that might impact the consumers in your business and whether it influences their ability to purchase at the same level?

A：Well we're monitoring that closely and we've sort of – but right now our main focus frankly speaking is on the supply side.

Q：Okay. And as it relates to that in China, how should we think about lockdowns from an impact on supply and an impact on demand? And what products in your portfolio should we expect to be most impacted? Thank you.

A：Yes. Good question. For Q2 so the quarter that we just finished, the restrictions in China had not started yet. And so Q2, we did have supply constraints. They were significantly lower than what we had experienced during the December quarter. They were driven by industry-wide silicon shortages. And specifically, the issue that I talked about on previous calls with the legacy nodes.

But looking ahead, we see two causes of supply constraints. One is the COVID-related disruptions; and there's the industry-wide silicon shortages that will continue. We've estimated the constraints to be in the range of $4 billion to $8 billion. And if you – these constraints are primarily centered around the Shanghai corridor. And the – on a positive front, almost all of the affected final assembly factories have now restarted. And so the range – the $4 billion to $8 billion range reflects various ramps of getting back up and running. We're also encouraged that the COVID case count that's been reported in Shanghai has decreased over the last few days. And so there's – there's some reason for optimism there.

Q：Good afternoon. Thanks for taking my questions. I guess I have two as well. First of all I was hoping you just touched a little bit on the geographic growth vectors that you saw. And I think Americas grew really well 19%, 20%. But Europe and China had much more muted growth if you may. I know your compares are fairly difficult but I'm curious if anything you would call out in terms of spillover effect on the macro side from Russia, Ukraine and Europe that's seeing some impact to consumer spend or even in China. Just help us understand what happened geographically there.

A：So Amit, as you said in the Americas, we had a very strong quarter up 19% very happy across the board there. Europe, again was a really good quarter for us. We grew 5% in spite of the fact that of course as you know during the month of March, we paused our sales in Russia. So we had an impact to our sales results there for a month of the quarter. But a number of European countries particularly in Western Europe did really well for us. And so it was a very good quarter for us pretty much in line with our expectations. Americas was better than our expectations. China was again a March quarter record for us. Keep in mind and this affected every geographic segment for us the different launch timing for the iPhone this year versus a year ago had an impact on the March quarter results because we launched the product later a year ago than we did this year.

So some of the channel fill for the new products happened during the March quarter a year ago. Japan and Asia Pacific were affected by foreign exchange. Japan would have grown in line with company average in constant currency terms. Asia Pacific as well was affected by foreign exchange with the dollar appreciating against most currencies. And then again this difference in the launch timing for the iPhone made a difference. Keep in mind again the supply constraints that we had during the quarter our results would have been obviously better without the supply constraints. Overall we felt very good about the performance around the world.

Q：If I could just follow up on the supply chain the $4 billion to $8 billion impact that you folks talked about. Do you think this is demand that's deferred out, or demand that's essentially destroyed because you have a product cycle that's going to come out in the year at some point soon this year? How do you think about demand deferred versus demand destroyed on that front? And then is there a sense of which product categories are most impacted by this versus not?

A：It will affect most of the product categories. And in terms of whether it's -- whether we can recapture or not we believe that there's a percentage of it that is recapturable and a percentage of it that is likely not where somebody needs something quickly. And that ratio or that percentage is very difficult to estimate. We obviously, try to do that internally in order to demand plan but it's not something that we share.

Q：Yes. Thank you. good evening. Also just wanted to dig in on the supply constraints a bit. And I guess one of the things you said is that the $4 billion to $8 billion range reflects some reopening of facilities during the quarter. I know obviously it's tough to predict as you go forward into the second half of launch of new products. But at that point would you expect the constraints to still be mainly on the component side? And then hopefully if things don't get worse in China then the facilities are open and the constraints are only the component constraints as you go into the second half of the year.

A：Yes. Chris it's hard to answer a question about unannounced products. And so I'll try to not do that. But the—For all products yes.

A：The $4 billion to $8 billion is simply as I had mentioned that if you look at the Shanghai corridor -- we have some final assembly plants in this area. And almost all of them have restarted as the good news of it working with local officials. But we planned various ramps for these. And that's the range of 4% to 8% that we've estimated. Kobi is difficult to predict. For sure for sure.

Q：As a follow-up I wanted to also follow on some of your comments regarding inflation and how Apple is dealing with it. Obviously component costs have been going up in many different areas. And then specifically in the semiconductor side costs have been going up but perhaps for some different reasons because of the additional cost of going up to new process nodes that it's higher than it has been in the past. How is Apple planning to deal with that? And is it possible for you to get through that without either raising prices on your product or affecting gross margins?

A：Well, some of what you said is in the results for the last quarter that we've announced. And obviously we've put our current thinking in the current quarter guidance that Luca listed earlier. There are component costs that are falling and ones that are rising.

And so not all of them are moving in the same direction. And so we really try to manage to the net of these. And I think we're doing a reasonable job currently navigating the what is a challenging environment.

The above Q&A are highlights that are edited for brevity.Click here for the full Apple Q2 FY2022 Earnings Call Transcript.​​​​​​​

If you want to know more details, you can click here to re-watch the Apple Q2 FY2022 Earnings Conference Call​​