After missing its December-quarter targets due to iPhone supply shortages, Apple forecast a better setup for the March quarter as production has returned to normal. Apple stock rose on Friday despite the company's disappointing earnings report.
The Cupertino, Calif.-based company late Thursday said it earned $1.88 a share on sales of $117.2 billion in its fiscal first quarter ended Dec. 31. Analysts polled by FactSet had expected earnings of $1.94 a share on sales of $121.4 billion. On a year-over-year basis, Apple earnings fell 10% while sales dropped 5%.
Apple blamed the shortfall on Covid-related disruptions at its main iPhone factory in China, as well as unfavorable foreign exchange rates and macroeconomic headwinds.
Apple executives gave cautious commentary about the current quarter, forecasting a similar percentage decline in sales as the previous quarter. Meanwhile, Wall Street had been looking for a revenue decline of less than 1% in the March quarter.
On the plus side, Apple noted that iPhone production had returned to normal levels. Also, it predicted a higher gross profit margin in its fiscal second quarter.
Apple Stock Gets Price-Target Hike
"Gross margins are now expected to be 44% at the midpoint and would be the highest gross margin in over a decade," Wedbush Securities analyst Daniel Ives said in a note to clients. In the December-quarter, Apple's gross margin was 43%. Over the past four years, Apple's gross profit margin has averaged 39%.
Additionally, China coming out of Covid pandemic lockdowns could be a tailwind for Apple sales there, he said.
Ives reiterated his outperform rating on Apple stock and upped his price target to 180 from 175.
On the stock market today, Apple stock rose 2.4% to close at 154.50.
Demand Weakness Ahead?
Barclays analyst Tim Long stuck with his equal weight, or neutral, rating on Apple stock. However, he raised his price target to 145 from 133.
Long sees demand waning for Apple products amid a difficult macroeconomic climate and lower consumer spending.
"What started out as supply shortages has shifted to demand weakness and potentially oversupply for some hardware categories," Long said in a note to clients. "The overall tone from Apple remains guarded given FX (foreign exchange) and macro uncertainty. Management called out Macs and wearables weakness as well as advertising and gaming weakness on the services side."
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
