Apple could be the next bellwether to feel the boomerang effect from elevated pandemic spending as it prepares to report results for the calendar third quarter. Analyst Toni Sacconaghi said the quarter’s earnings historically have not been that important, but that more attention has usually been paid to Apple’s forward guidance and commentary. He’s worried that it might become clear the iPhone maker benefited from lockdown spending habits and could be susceptible to weaker spending as consumers shift their focus from goods to services and grow tired of big ticket purchases. “More broadly, we worry that AAPL may have been a Covid beneficiary, amid work/learn from home and strong consumer spending, which could reverse, particularly as consumers’ spending priorities change and rising rates potentially pressure demand,” Sacconaghi said in a note to clients. “Apple is consumer centric, and is highly transactional, with less than 10% of its revenues and profits being recurring —meaning it could be vulnerable to a downturn.” Sacconaghi pointed to the fact that 2021 and 2022 operating profits were more than 60% above the pre-Covid, a possible warning that Apple could feel a snap back in spending since it saw the benefits earlier. While Apple has premium prices, a wide range of income levels purchase its products, so it does not have the same shield from inflation as other goods that cater more exclusively to higher-income consumers. Still, he said Bernstein is more optimistic on Apple’s fiscal fourth-quarter earnings than consensus, helped specifically by having an extra week in the quarter. But Bernstein sees only neutral to modestly negative risk-reward on the stock for the next three to six months, which is a turnaround for a company considered a pandemic winner. For the new iPhone line, Sacconaghi said he’ll listen for commentary on the 14 model’s performance and is worried about potential weakness in China due to the strength of the year-earlier fourth quarter. Apple observers have questioned the relative success of the iPhone 14 models as the company backtracked on plans to increase production volumes . Bernstein expects iPhone revenue climbed 13% in the latest quarter compared to last year. He also said there could be a wide range of outcomes for new Mac and iPad performance, as a backlog of orders and weakness in computers possibly hurts sales. Bernstein estimated a 25% decline for consumer PCs in the latest quarter and a 40% slump in Chromebooks due to education weakness. The firm expects 4% growth for Macs, while iPad sales are forecast to decline 2%. Bernstein expects service revenues to expand around 10%, slower than the June quarter’s 12%, and a risk that that results could fall short of even that mark due to declines in App Store purchases – another sign of changing consumer priorities. Apple is expected to report earnings Oct. 27 before the bell.
