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Earnings preview: Can Apple keep its meteoric sales growth?

apple earnings preview

Apple, with the largest market cap of over $2.5 trillion, has been performing strongly with solid sales growth of its leading products, such as iPhones, Mac, and iPad. Analysts expect Apple to continue growing, but at a slower pace in the March quarter due to global headwinds and major supply chain issues. Moreover, Russia’s pullout and China’s lockdowns could have negatively affected Apple’s sales, which will be the risk factors in its earnings results.

Slowing revenue growth

Apple had its largest annual growth of 11% in revenue in the final quarter, thanks to strong sales of its iPhone 13. It is expected Apple will hit revenue of $94.02 billion, and EPS of $1.43 in the first quarter, or 5.6% and 2.14% yearly growth, down dramatically from $123.9 billion and $2.10 respectively from the previous quarter. Apple’s CEO Tim Cook indicated supply constraints were the main issue in its Q1 FY21 result but expected the supply issue would be less for the March quarter. The iPhone 13 iteration, including iPhone 13, iPhone 13 Pro, iPhone Pro Max, and iPhone 13 mini, accounted for 75% of the sales in March, according to Consumer Intelligence Research Partners. Whether the sales revenue can remain strong as expected is a key focus in the upcoming earnings result. 

Key risk factors of Russia and China

However, Cook’s statement was made before the Russia-Ukraine war and China’s covid lockdowns. According to the online shopping portal Burga, Apple might have lost $1.14 billion in iPhone sales due to the sales halt in Russia. Further, Apple’s prime supplier, Foxconn halted production in its two plants in March. The following lockdowns in Shanghai and Kunshan also caused the major iPhone and iPad assemblers, Pegatron and Quanta, to suspend production last week. Apart from supply issues, the demands may be also negatively affected by the ongoing China lockdowns. The production halts in China will not be integrated into Apple’s earnings for the March quarter, but it may lead to a weakening outlook for its June quarter.

Watch the 152.50 key medium-term support on Apple

Source: CMC Markets as of 27 Apr 2022 (Click to see the enlarged chart)

Since the start of this year, the share price of Apple (AAPL) has staged a decline of 13%, and interestingly, it is the “best underperformer” among the mega-cap tech stocks where its performance is almost on par with the benchmark S&P 500 and even outperformed its Information Technology sector by around 500 basis points.

Trade the US market before it opens (6pm – 11.30pm AEST) and after it closes (6am – 10am AEST) in addition to its normal hours.

The recent decline of AAPL has breached below the 50-day moving average on 22 April 2022 which suggests a lack of bullish conviction in the medium-term.  However, on the positive side, its current price actions are hovering right above the lower boundary of the major ascending channel in place since the 21 September 2020 low now acting as a support at 152.50.

Meanwhile, the daily RSI has managed to stage a bounce from its corresponding ascending support near the oversold region. Hence, mixed technical elements at this juncture for AAPL, prefer to have a neutrality stance between 152.50 and 171.50 (swing highs of 13 April/20 April 2022 & 61.8% Fibonacci retracement of the recent decline from 30 March 2022 high to 27 April 2022 low).

Only a break with a daily close below 152.50 is likely to damage its major uptrend phase and trigger a potential multi-month corrective decline towards the next support at 118.45 in the first step. On the flip side, a clearance with a daily close above 171.50 revives the bullish tone for a potential leg of impulsive up move to retest the 182.88 current all-time high before the next resistance zone at 194.45/199.70 (upper boundary of the major ascending channel & a cluster of Fibonacci extension levels).

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