At one stage it looked as though Apple had saved the US March quarter earnings season and the stockmarket after releasing a surprisingly solid quarterly result, loaded with more goodies for shareholders like Warren Buffett and his Berkshire Hathaway (which reports on Saturday night, Sydney time)
Apple’s report revealed record revenue, record earnings, a small 5% rise in dividend and an extra $US90 billion added to its current buyback.
But a negative post results briefing from Apple, especially about Chinese supply and retail demand and pointed comments from Amazon about cost and supply problems, saw the wider futures market on Wall Street turn lower
There certainly had been a lot favourable forecasts for both companies before they reported after the close on Thursday – Apple shares were up 4.5% in regular trading, Amazon shares were up 4.6% in the across the board surge that saw the Nasdaq jump almost 4%.
But once the reports had been considered and the comments at the Apple briefing digested, the shares in both companies turned lower in afterhours trading and were down around 2.3% for Apple in early Asia while Amazon was still off around 9%.
Amazon’s report wasn’t as solid as Apple’s. Amazon did poorly, reporting a net loss of $US3.8 billion after a big write down on the shrunken value of its stake in the one-time boom electric vehicle stock Rivian (as did another big shareholder, Ford, earlier in the week).
A year ago, Amazon earned $US8.1 billion. Revenue rose 7% to $118 billion for the quarter with solid contributions from cloud computing, advertising and its online retail stores.
But there was a hint of all’s not well in these comments from CEO Andy Jassy “The pandemic and subsequent war in Ukraine have brought unusual growth and challenges,” as he noted continuing inflationary and supply chain pressures.
Those comments added to the negative impact of the post release briefing from Apple CEO, Tim Cook and chief financial officer, Luca Maestri.
Analysts heard warnings of extra costs this quarter – in the billions of dollars and heading out into the rest of the year as well as growing weaknesses in China.
Maestri said the impact this quarter would be substantially larger” than the hit in the second quarter.
He singled out several challenges in the current quarter, including supply constraints related to Covid that could hurt sales by between $US4 billion and $US8 billion.
Apple warned that demand in China was being hurt by Covid-related lockdowns.
Supply problems were focused on a corridor in Shanghai, China and reflected Covid disruptions and silicon shortages, he told the briefing.
The pandemic was also affecting demand in China, he added.
On top of that Apple CEO Tim Cook said that the company was “not immune” to supply chain challenges.
The two executives provided more detail about the impact on their company’s business from the continuing Covid related lockdowns and infections across much of China that have any other US company this quarter.
Notably silent has been the Twittering Elon Musk whose Tesla company has a huge factory in Shanghai that has not been at capacity for more than a month and thousands of models haven’t been produced and delivered to waiting customers at an unknown cost.
(Tesla shares fell again on Thursday, down 0.45% on a day when the Nasdaq and S&P 500 saw sharp rallies.)
Apple did not provide a forecast for the current quarter and hasn’t provided official revenue guidance since February 2020, citing uncertainty from the Covid-19 pandemic.
But the absence of guidance this quarter was magnified by the gloom on costs and market challenges, and down went the shares.
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The surge in tech and other stocks in regular trading came after the first estimate of US GDP showed a shock contraction of 1.4%, mostly driven by shrinkage in US business inventories, a notoriously volatile measure and a record March quarter trade deficit (both can change in the next two subsequent revisions of the GDP data).
That saw investors chase tech stocks in the belief the Fed won’t be so aggressive with its rate rises starting next Wednesday with a still expected 0.50% rise, although some hopefuls scaled that back to a more cautious 0.25% rise.
But the confidence didn’t survive the reports from Apple and Amazon.
Falls in the price of both companies’ shares saw Wall Street futures move from a small early gain to losses. Apple shares were off more than 4% at one stage after rising early on by 2.4%. They were down 2.3% in early Asian dealings.
Amazon shares slumped more than 11% at one stage, or more than $US155 billion in value. They improved to be down 8% in early Asian trading – still down more than $US100 billion in value which is a big loss in a day for any company.
The moves were a big reversal for stocks, which posted strong gains in regular trading. The Dow was up 614 points, or 1.9%, the S&P 500 added 2.5% while the Nasdaq jumped 3.1%.
But it was a different story in early Asian trading on Friday, with Nasdaq futures down 2%, the Dow off 0.3% and S&P 500 futures lost 1%.
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Based on the quality of its March quarter report, Apple should have changed market sentiment as it proved the world’s biggest listed company by market value had found ways to continue its solid growth for another quarter.
But the continuing constraints on supply, especially from China, as well as retail demand (again, especially from China) is now obviously too much and looks like hitting the company this quarter and next.
Apple reported second-quarter (it is a September 30 balancing company) net income of $US25.0 billion, up from $US23.6 billion in the same quarter a year ago.
That was on revenue up around 9% to $US97.3 billion from $US89.6 billion, while analysts had been expecting $US94.0 billion.
In addition to its latest results Apple said it was adding $US90 billion to its buyback, while also boosting its quarterly dividend by 5% to 23 US cents a share.
Apple generated $US50.6 billion in revenue from its iPhone business, up from $US47.9 billion a year before and ahead of the market forecasts, which was for $US48.4 billion.
The company saw $US7.6 billion in iPad revenue, down from $US7.8 billion a year prior, as well as $US10.4 billion in Mac revenue, which was up from $US9.1 billion.
Apple’s wearables, home, and accessories category saw a sharp rise in revenue to $US8.8 billion in revenue, up from $US7.8 billion a year earlier.
The company’s services business had $US19.8 billion, compared with $US16.9 billion a year, further emphasising that it is Apple’s second biggest and fastest growing segment.
All in all a positive report, but more and more analysts are wondering if this will be a highpoint for a while for the world’s biggest and best known company.
