The resurgent Covid pandemic in China is playing havoc with Apple's business, a Wall Street analyst says. Lockdowns in China to prevent the spread of the disease are impacting both supply and demand for Apple devices. The situation also is pressuring Apple stock.
In a note to clients Tuesday, Rosenblatt Securities analyst Barton Crockett called the events in China "a material risk" for Apple.
"After enjoying a pandemic boost to computer and tablet sales, share gains from better technology (courtesy of M1 chips) and a surprisingly well-received new iPhone cycle last year, Apple is confronting an obstacle that seems hard to overcome — China lockdowns that appear unlikely to fully abate any time soon," Crockett said.
He added, "This, to me, looks like loose threads on Superman's cape."
Apple Stock Gets Neutral Rating
Barton initiated coverage of Apple stock with a neutral rating and price target of 184.
On the stock market today, Apple stock rose 1.4% to close at 167.40.
In Apple's fiscal 2021, Greater China (mainland China plus regions such as Hong Kong) accounted for 19% of the company's total sales. The region also is the principal global production hub for smartphones and other electronics.
"China's rolling Covid lockdowns are troubling because it's unclear how they end, given weak vaccines in-country and a zero-tolerance policy," Crockett said. "The risk is economic disruption to a key market, and erosion of Apple's unique ability to keep supply disruptions at non-troubling levels. Meanwhile, the demise of one-time major rival Huawei has largely run its course and is no longer a tailwind for share gains."
Apple Earnings On Tap
The Covid lockdowns in China have impacted factories that make iPhones, Mac computers and iPad tablets, according to media reports.
The next potential catalyst for Apple stock could be the company's March-quarter earnings report due April 28.
Wall Street predicts Apple earnings of $1.43 a share on sales of $94 billion in its fiscal second quarter, according to FactSet. In the same quarter last year, it earned $1.40 a share on sales of $89.6 billion. Also, analysts predict the company will use the occasion to increase its quarterly cash dividend and share buyback plans.
For the past 16 weeks, Apple stock has been in a consolidation pattern with a buy point of 183.04, according to IBD MarketSmith charts.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
