Apple (AAPL) Q4 Earnings: What to Expect

Close-up of Apple iPhones on display
Credit: Edgar Su / Reuters - stock.adobe.com

How much has Apple (AAPL) suffered from the chip shortage? According to industry reports, the tech giant has reduced iPhone 13 production targets by about 10 million units from its prior target of 90 million units.

This topic, among others, will be covered when the tech giant reports fourth quarter fiscal 2021 earnings results after the closing bell Thursday. While the long-term revenue impact is believed to be minimal, the reduction is certain to hit revenue in the short term. Analyst Samik Chatterjee of Morgan Stanley forecast a 10 cent impact for each five million iPhone unit production cut. This means Apple could suffer an EPS impact of 20 cents, assuming a 10 million reduction. This would reduce the current $1.84 estimate to $1.64.

When considering Apple earned $1.68 per share a year ago, this puts the company in danger of producing minimal to no growth. The Street forecasted revenue for January quarter to grow just 6.5%, while the subsequent quarters would struggle due to the chip shortage. This highlights the importance of Apple’s Services business, which now accounts for almost 30% of total revenue. The stock, meanwhile, which has risen 12% over the past six months, including 3% last week, hasn’t shown significant adverse impact to the production cuts.

However, if judging from a year-to-date basis, the story changes quite a bit as Apple stock has risen just 12% year to date, trailing the 21% rise in the S&P 500 index. This means the gains Apple has made has only allowed to catch up to the rest of the market. Issues related to the chip shortage aside, Apple’s consensus twelve months price target stands at $170, calling for some 15% returns. This suggests the Street is still bullish on the stock and it’s possible that Apple’s recent gains are only the beginning of an uptrend. Investors are hoping for more clarity on these areas on Thursday.

In the three months that ended September, Wall Street expect the Cupertino, Calif.-based tech giant to earn $1.23 per share on revenue of $84.67 billion. This compares to the year-ago quarter when earnings came to 73 cents per share on revenue of $64.7 billion. For the full year, earnings are expected to rise 70% year over year to $5.60 per share, while full-year revenue of $366.24 billion will rise 33.4% year over year.

The impressive projected year-over-year increase in full-year 2021 revenue of $366.24 is driven by the company’s iPhone unit sales which accounted for more than 54% of the company's revenue in the first three quarters of the fiscal year. This strong representation has been due to the company’s benefit of the 5G ramp and upgrades cycle for its iPhones. The most recent iterations, the iPhone 13 is also expected to accelerate the 5G ramp for the company.

The question is, to what extent will the reported 10 million unit cut due to the chip shortage impact this quarter’s results? Apple previously issued production target of 90 million iPhone 13 models in the fourth quarter. In Q3, Apple delivered revenues of $81.4 billion and earnings per share of $1.30, beating on both metrics and on every business segment. Q2 iPhone revenue of $39.57 billion beat estimates of $34.56 billion. Remote-work tailwind also boosted sales in MacBooks and iPads.

Investors will focus on the company’s guidance for any clues about how Apple’s new devices will perform, particularly the refreshed iMac and iPad Pro devices that will be powered by the company's self-designed M1 chip. And assuming the reported production cuts are not as significant to revenues, Apple stock will continue to rise.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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