Apple Inc. (Nasdaq: AAPL) stock traded lower by 2.8 percent on Thursday after earnings guidance from supplier Taiwan Semiconductor ( TSM) suggested weakness in the high-end smartphone market in the second-quarter. Analysts say Apple’s iPhone numbers may come up a few million short of consensus expectations in the second quarter, but a short-term dip in iPhone sales doesn’t mean it’s time to sell Apple stock.
On Thursday, Taiwan Semiconductor guided for second-quarter revenue of between $7.8 billion and $7.9 billion, well short of consensus expectations of $8.8 billion. The company specifically blamed its mobile business for the weak numbers, and investors and analysts were quick to read between the lines.
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“Smartphone semi weakness [is] the main reason for the revenue shortfall,” Morgan Stanley analyst Charlie Chan says, according to CNBC.
“Beside the order cuts from the current Apple iPhone X processor, we attribute the major revenue shortfall in the smartphone segment to key customer MediaTek … and around a month’s delay of Apple’s new 7nm processor to July,” Chan says.
Bank of America analyst Wamsi Mohan had expected Apple to miss consensus iPhone unit sales estimates in the second quarter prior to the Taiwan Semiconductor commentary. Now, Mohan says that miss may be even larger than anticipated. Wall Street analysts expect Apple to report iPhone unit sales of between 42 million and 43 million, but Bank of America is calling for only 40 million iPhone units.
“Given TSM’s guidance, we could see some additional downside to iPhone units of up to 5 million units for Q2, based on channel inventory dynamics,” Mohan says.
A 5 million-unit shortfall in iPhone sales would also shave about $3.5 billion in revenue and 20 cents in earnings per share off of Apple’s June quarter numbers, Mohan says. Bank of America is already calling for second-quarter EPS of $2.06 on revenue of $50.4 billion, below consensus estimates of $2.06 and $52 billion, respectively.
Mohan says Apple stock may react negatively to the magnitude of the miss, but long-term investors should stay patient.
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“We expect the shares to face some pressure heading into earnings, however, we view the long-term story as increasingly decoupled from iPhone cycles, morphing to one of capital return, services upside and stable hardware,” Mohan says.
Morgan Stanley has an “overweight” rating and $203 price target for Apple. Bank of America has a “buy” rating and $220 target for AAPL stock.
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Apple Inc. (AAPL) Investors Brace For Disappointing iPhone Numbers originally appeared on usnews.com
