Yahoo Finance's Brian Sozzi discusses whether COVID lockdowns in China affecting iPhone production are priced into Apple stock.
JULIE HYMAN: More trouble for Apple. The company got hit with another iPhone estimate cut yesterday. Analysts have been warning the unrest in China will affect the company's bottom line. Sozz has been keeping a close eye on this. And that's where we find his take today. Yeah, they're really piling up. We talked to an analyst yesterday about this.
BRIAN SOZZI: In our field, this what we call a "round-up," because everybody is certainly piling on this Apple earnings estimate downgrade. The latest one is really influential. Longtime Apple analyst Ming-Chi Kuo-- he's over at TF International Securities-- writing in a "Medium" post that he sees fourth quarter iPhone shipments falling by about 20%, which is really well below estimates.
Ultimately, he thinks revenues will come substantially below analysts' estimates because of the situation in China, and Apple being unable to produce as many phones as it wants. Now, this comes a couple of days after we got a note from Evercore ISI this week saying they could see, you could see, Apple might see a close to 10 million hit here in iPhone shipments here in the fourth quarter. And then you have Wedbush analyst Dan Ives also reiterating the similar position, calling the situation in China "a real gut-punch to Apple's quarter."
Now, the real interesting thing to watch here-- a lot of analysts still think Apple will make up this difference-- and I think you brought this up yesterday, Julie-- will make up this difference in the first quarter, as they start to ship these phones. I think Ming-Chi Kuo really-- probably the first analyst to poke a little bit of a hole in there, saying, you know what? The economic environment is in fact slowing down, and perhaps consumers just wait to buy these new phones, because they just are disappointed today that they cannot get them.
But something to watch moving forward as well. I think that's why you haven't really seen Apple stock fall off the map here. That expectation is that the first part of next year, we'll see a bounce back in demand for this company. My take is this here, looking more at the valuation of Apple. And I mentioned this yesterday-- this stuff really should start to be priced into Apple stock. I encourage everyone, go to the Yahoo Finance platform, go to the Apple Ticker page, go to the Statistics section.
Click through, and you can see that Apple is about 25 times forward earnings. That is a significant premium to the broader market. And yes, Apple is a leader, yes, Apple has a lot of cash, and yes, they pull a lot of money services revenue-- high marketing services-- but still, if these iPhones are not getting into the hands of people-- these high priced iPhones-- that is a major red flag, and it could really lead to a warning from Apple before it announces earnings in a couple of months.
BRAD SMITH: Do you think that hits on the Teflon type of annexation that Apple has had over the years, too?
BRIAN SOZZI: Well, right now, it has not done so. But analysts are also talking about-- this might be the moment that Apple has to look in getting production out of China, and diversifying away-- places to other countries-- let's say, India. What the problem with that will be is that raises the cost. Apple has been able to make these phones very, very cheap in China for a long, long period of time. And if it has to shift production, that could really hit Apple's margins.