Written by Brenda Nakalema

Apple Will Have a Tough Time Next Quarter. Here’s Why.

Apple had a great second quarter with revenue of $97.3 billion, a 9 % increase from the previous year and …

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Apple had a great second quarter with revenue of $97.3 billion, a 9 % increase from the previous year and setting a record for a non-holiday quarter. However, the tech giant’s forecast for the June quarter might be different since it expects supply constraints to crimp revenue, affecting the stock.

Apple (ticker: AAPL) shares dropped 0.8% to $162.39 in premarket trading on Friday. The shares climbed on Thursday following the earnings report release and sales that topped forecasts. However, the stock then took a downturn after Apple executives warned that supply constraints would lead to a hit of roughly between $4 billion- $8 billion in its third quarter. Apple Chief Financial Officer Luca Maestri also added that covid- related shutdowns could impact customer demand in China.

“Supply constraints caused due to Covid-related disruptions and industry-wide silicon shortages are impacting our ability to meet customer demand for our products,” Maestri said.

The constraints amounting to a potential loss of $4 billion to $8 billion are “substantially larger than what we experienced during the March quarter,” he added.

An analyst at Piper Sandler, Harsh Kumar, said Apple’s guidance “may be considered a disappointment for all the wrong reasons.” Kumar added that the issues with Apple are merely “transitory” and that “its fundamentals seem to be headed in the right direction, but the short-term transitory impacts” were negatively affecting the guidance.

Piper Sandler stood with its Overweight rating on the stock but lowered its price target from $200 to $195.

Evercore ISI’s Amit Daryanani took note of the several issues to consider that could spoil Apple’s top-line growth in the June quarter. On top of Covid-related supply constraints, he also noted that the war in Ukraine and problems resulting from foreign exchange are also causes for concern.

However, Daryanani said that given Apple’s comments, a lot of the supply issues had been resolved, “we expect some of these revenues to come back as they likely create more pent-up demand” for Apple products.

According to UBS, although the near-term outlook for Apple was disappointing, the company’s value proposition “remains unchanged as strong iPhone, Mac and iPad demand in March lend credence to the fact that supply is the gating issue as iPhone demand is likely above normal seasonal patterns.”

UBS set its rating on the stock at a $185 price target.

Robert Schein, a chief investment officer of Blanke Schein Wealth Management in Palm Desert, Calif, said both Apple and Amzon.com (ticker: AMZN)- which also posted sad first-quarter results and issued a weak forecast- were being greatly affected by global issues like the Ukraine war and the Shanghai lockdowns. However, he also added the events were likely to be short term and have little to do with the long-term growth prospects of the tech giants.