here’s-what-we’re-watching-as-these-2-mega-caps-report-after-the-bell

Here’s What We’re Watching as These 2 Mega-Caps Report After the Bell

Apple (AAPL) and Amazon (AMZN)  report their quarterly performance after the bell on Thursday — and what they share will likely influence how we close out July. Let’s set the table for these two reports and share another report we’ll be closely watching after today’s market close.

Will Apple Shine?

The Wall Street consensus has Apple delivering earnings per share of $1.15, down from $1.30 in the year-ago quarter, on revenue of $82.97 billion, which would be up around 2% year-over-year. We’ve heard comments of weakening low-end smartphone demand from Qualcomm (QCOM)  last night and similar comments from Samsung (SSNLF) this morning, with both calling out that so far higher-end smartphone demand is holding up rather well. From that we infer Apple’s iPhone business could deliver a better than feared June quarter.

The decline in EPS vs. the modest revenue growth expected reflects supply chain and related concerns, which Apple telegraphed will impact its performance between $4 billion-$8 billion during the June quarter. While that likely reflects materials and components, it also includes the impact of China’s zero-tolerance Covid shutdowns that hobbled manufacturing at some of Apple’s partners during the quarter. When Apple reported its March-quarter results, it offered little formal guidance for the June quarter, and Covid-related lockdowns returning in China. Apple may not give formal guidance for the September quarter. If that’s the case, it will be that much harder to assess the impact of Apple’s upcoming iPhone refresh, especially since it tends not to share a product announcement date until much later in the quarter.

As such, we’ll be closely watching inventory levels exiting the quarter as well as iPhone channel inventory comments. We suspect Apple was once again active in buying back shares, and with its second $1.50 per share quarterly dividend paid several weeks ago, we doubt we will hear anything new on the dividend front.

In terms of what’s expected by product line for Apple for the June quarter:

  • iPhone revenue of $38.3 billion versus $39.6 billion last year
  • iPad revenue of $6.9 billion vs. $7.4 billion last year
  • Mac revenue of $8.8 billion vs. $8.2 billion last year
  • Wearables and other product revenue of $9.0 billion vs. $8.8 billion last year
  • Services revenue of $19.9 billion vs. $17.5 billion in the year-ago quarter

What Amazon Will Tell Us

The online retail and cloud company is expected to report June quarter EPS of $0.13 vs. $.76 in the year-ago quarter, even as revenue for the quarter is expected to rise 3.4% year-over-year to $119.0 billion. While we’ve seen digital shopping rebound throughout the June quarter per the monthly retail sales reports, other indicators such as the monthly SpendingPulse reports from Mastercard (MA) pointed to more subdued digital spending during the three-month period. Complicating revenue comparisons for Amazon is different timing for Prime Day this year (in the current quarter) vs. last year (in the June quarter). We also expect the quarter’s move in the dollar will be a headwind for the company while supply chain issues and expedited freight are likely to contribute to margin pressure during the quarter.

With the results of Alphabet’s (GOOGL) and Microsoft’s (MSFT)  June-quarter cloud results in hand, we’ll be looking to see if AWS continued to hold its own, and whether margins are under attack with competitive pricing. We continue to view AWS as one of the key differentiators between Amazon and other retailers, given not only its higher margins and cash flow, but its ability to fund various Amazon initiatives to grow its business for the long haul.

One of those initiatives is the company’s move into health care, something we see fitting rather well with a number of its offerings. We hope to hear more about its plans for One Medical, but given that we tend not to hear any big picture insight into its efforts on these earnings conference calls we may have to wait a bit longer.

Our plan with AMZN shares was to sit on the sidelines given the timing of Prime Day this year vs. last, but also to allow for the worst of supply chain issues to be factored into the share price. We continue to think AMZN shares are ones to own, but what’s published and shared tonight will determine if we revisit the current Two rating.

Lot’s of ‘Intel’ …

While we have no active position in Intel (INTC)  shares, and we’re not likely to, given signs AMD (AMD) and Nvidia (NVDA)  continue to eat its lunch, we’ll be digging into three areas when it reports after the close. First, what is it seeing in the PC market? Similar and second, what is it seeing in the data center market in terms of demand and pricing? Third, following the passage of the CHIPS Act last night by the Senate, what are its plans for capital spending in 2022 and beyond. The answer to that last question will be one for Applied Materials (AMAT) shares, while the first two are for AMD and NVDA shares.

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