Apple falls 6% post earnings report: Here's what spooked investors

Apple Inc management warned that supply constraints would intensify significantly from the June quarter.

Apple shares: Shares of the world's most valuable company Apple Inc tumbled 6 per cent post earnings announcement despite over 15 per cent sales growth for the third straight quarter ended June. 

 

The company said its total sales climbed 16 per cent to $109.4 billion, but what spooked investors is the commentary on the future revenue outlook, which missed estimates. It also marked CEO Tim Cook's last earnings call before John Ternus, current head of hardware, takes over from the Apple veteran on September 1. 

 

Apple's share price ended 6.33 per cent lower in extended trading at $333.43. Despite that the stock remains 23 per cent higher for the year so far amid demand for technology companies. It also recently topped the $5 trillion mark briefly in market capitalisation and remains the world's most valuable stock. 

 

Apple earnings takeaways

That said, here are the key takeaways from Apple's June quarter show that spooked investors:

 

Lower-than-expected revenue forecast

Apple, in a post-earnings conference call, forecasted that its revenue will rise 9 per cent-11 per cent in the fourth quarter ended September, a visible deceleration over the past quarters. As per a Bloomberg report, this missed estimated growth of more than 12 per cent in the period. 

 

Component shortages plague Apple

The revenue miss was compounded by management warning that supply constraints would intensify significantly from the June quarter, alongside a 2.5 percentage point currency headwind. Cook highlighted that Apple facing issues with rising memory cost. The company recently raised the prices of Macs and iPads last month.

 

The supply crunch will lead to longer wait times on key computers like the Mac mini and Mac Studio, Cook added in the call. “If you look beyond September, we see the market pricing for memory continuing to increase, which could drive an increasing impact on our business,” Cook was quoted as saying by a CNN report. 

"The AI buildout is soaking up global memory capacity, and the bill is now landing on consumer hardware. Apple is the largest and most sophisticated component buyer on the planet. If Apple is getting squeezed on memory, everyone below it in the supply chain is getting squeezed harder. So this quarter was really a read-through on the entire hardware complex, not just one company," said Viram Shah, Founder & CEO, Vested Finance.  

The second thing worth noting is that the supply constraint isn't a demand problem, he added.

 

China revenue struggles

China, one of Apple's biggest markets for iPhone sales, saw a weaker-than-expected revenue. China sales amounted to $18.8 billion, short of the analyst estimates of $19.6 billion, Bloomberg said. 

Lastly, Shah noted another issue is the quality of the beat. "Roughly two percentage points of that 50% gross margin came from tariff refunds. Strip that out and the number is slightly below what analysts modelled. When a stock's up more than 20% for the year, sitting near five trillion dollars at forty-odd times earnings, the market assesses every line item," Shah added.

 

Apple stock outlook

Harshal Dasani, business head at INVasset PMS, said that the component squeeze is the AI-driven memory shortage reaching consumer hardware, the same force lifting SK Hynix and CXMT is now taxing device makers, making this an industry-wide read rather than an Apple problem. 

 

Secondly, he said that demand is clearly not the issue given the record print and margin expansion. Going ahead, September's launches carry unusual weight, with the Gemini-powered Siri redesign serving as the market's proxy for whether Apple has closed its AI gap, he noted. "Until the constraints ease, the stock trades on execution, not demand."

 

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