Apple Inc. - Expecting revenue contraction

8 May 2023
  • 2Q23 results were within our expectations. 1H23 revenue/PATMI at 53%/54% of our FY23e forecasts.
  • Revenue contraction was lower than company guidance due to better-than-expected iPhone sales. Gross margin expanded by 130 basis points QoQ.
  • 3Q23 guidance is for revenue YoY decline of around 2%-3% with gross margin remaining stable QoQ. Weakness due to product revenue facing challenges from the macro conditions.
  • We cut our FY23e revenue by 5% and PATMI by 4% to account for expected continued revenue contraction in 3Q23. We downgrade from BUY to ACCUMULATE rating with a lowered target price of US$183.00 (prev. US$186.00), with a WACC of 6.5%, and a terminal growth rate of 3%. We forecast FY23e revenue to contract relative to FY22 as sales are expected to continue declining in 2H23e, with positive growth returning in FY24e.

 

The Positives

+ Revenue beat company guidance. Revenue dipped 2.5% YoY to US$94.8bn, lower than company guidance of 5% YoY contraction due to better-than-expected iPhone sales. iPhone revenue grew 2% YoY to US$51.3bn despite FX headwinds and challenging macro conditions, driven by strong growth in emerging markets with revenue doubling in India, Indonesia, Turkey, and UAE. Mac/iPad revenue were down 31%/13% YoY, in line with guidance, as both products faced challenging comparisons and macro conditions. Services revenue grew 5.5% YoY (~11% in constant currency) to US$20.9bn, on top of a tough comparison against 2Q22 where it grew 17%. Apple indicated it has >975mn paid subscriptions, 2x from 3 years ago and up from 935mn disclosed in 1Q23.

 

 + Sequential gross margin expansion. Services gross margin expanded 20 basis points QoQ to 71%, partially offset by QoQ product gross margin contraction of 30 basis points to 36.7%. Overall gross margin expanded by 130 basis points QoQ to 44.3%, largely driven by favourable revenue mix towards Services (22% of total vs 18% in 1Q23) and cost savings.  

 

The Negatives

– Revenue contraction to continue. Apple guided YoY revenue performance in 3Q23 to be similar to that of 2Q23, implying a potential contraction of 2%-3%, with FX expected to be a headwind of 4%. This is below our initial expectation of positive sales growth in 2H23e. Services YoY revenue performance is also expected to be similar to its growth in 2Q23, suggesting a continued increase at ~6%, while facing challenges in digital advertising and mobile gaming due to the macroeconomic environment.

 

About the author

Maximilian Koeswoyo
Research Analyst
PSR

Maximilian mainly covers the US technology sector. In his strive to be a globalized citizen and get continuous exposure to the fundamentals of companies from various industries, he graduated from Singapore Management University holding a Bachelor’s degree in Business Management.

Latest Reports

Join Events & Seminars

Learn best practices and latest market outlook from experts and special guests

Hear & Ask our Experts

Join live weekly market calls

Read Popular News & Reports, Technical Pulses

at www.stocksbnb.com

Subscribe to our YouTube Channel

New video every week

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com