iPhone prices may rise outside US, but analysts optimistic despite company’s warning

Analysts seem generally happy with the AAPL outlook despite the company’s stark earnings call warning, but one has warned that iPhone prices may rise outside the US. While this could happen across the complete range of Apple products, it’s likely to be especially problematic for the iPhone 14.

Apple reported record earnings for Q2, but warned that revenue for the current quarter would incur a hit of anywhere from $4B to $8B due to five issues …

Background

Apple reported record earnings for the first quarter of the year (Apple’s fiscal Q2).

Apple reported revenue of $97.3 billion, an increase of 9% year over year. The company reported a profit of $25 billion and earnings per share of $1.52.

However, the company warned that the current quarter was going to be a rocky one.

Apple CEO Tim Cook yesterday warned that Apple is likely to see a supply shortfall costing the company anywhere from $4B to $8B this quarter. That followed a market intelligence report suggesting continuing shortages in four component categories.

CEO Tim Cook outlined five reasons why Q3 revenue was expected to take a huge hit:

• Component shortages
• COVID-19 disruption in China
• Exchange rate weaknesses
• Loss of Russian sales
• Inflation reducing consumer spending power

Apple analysts generally upbeat

PED30 has a roundup of reactions from 13 analysts, and the general consensus is upbeat. Piper Sandler’s note was pretty representative of the general view.

Transitory Headwinds Overshadow Strong Business Trends. In our view, the guidance may be considered a disappointment for all the wrong reasons. In the June quarter, Apple is being impacted by two transitory, nonoperational issues: 1) a 150 bps headwind from the sales ban on Russia and 2) another 300 bps headwind from FX. In addition, the company is facing a $4 billion to $8 billion headwind from COVID shutdowns in China and silicon shortages. The company’s fundamentals seem to be headed in the right direction, but the short-term transitory impacts are distorting June quarter results.

But iPhone prices may rise outside US

However, one analyst warned that iPhone prices may rise outside the US when the iPhone 14 lineup is launched in the fall. Chris Caso warned that the exchange rate problem may be a long-term one, and that while Apple product prices may increase across the board beyond US borders, the timing may be particularly unfortunate for the iPhone 14.

We, however, consider FX and Russia to be more permanent, and now fear that Apple may need to raise prices in local currency when new products launch in the fall, if exchange rates don’t change by then. When that’s happened in the past, rising local prices have a negative effect on unit demand.

That could see Apple warning of a further revenue hit in the fall quarter, specifically due to this.