While the rest of the challenges are pretty self-explanatory, the rising power of the dollar and its higher exchange rate towards local currencies is a new twist. One Apple analyst – Chris Caso of Raymond James – thinks that Apple will be forced to raise the iPhone 14 prices abroad as a response to the weaker exchange rates:
Despite the fact that Apple’s Q1 revenue exceeded analysts’ expectations, CEO Tim Cook warned that Apple is seeing some negative trends halfway through the current quarter, which could shave $4-$8 billion off its revenue. The main factors contributing to Apple’s financial underperformance this quarter would be the COVID-19 lockdowns in China, which affect Apple’s assembly lines, the loss of the Russian market due to sanctions, currency exchange misallocations, rising inflation, which leaves buyers with less and less disposable income, and general component supply shortages, which have plagued the industry for quite some time.
While he still has an outperform rating on Apple’s stock, his $190 price target is somewhat lower than of most other analysts polled by Philip Elmer-DeWitt. When expressed in dollar terms, iPhone prices are way higher in most any other country that is not the US, so raising these tags further may further impact Apple’s iPhone 14 shipment schedule that may be weakened by a combination of the aforementioned factors anyway.
Apple posted a strong March quarter, but commentary implied incremental weakness in June driven by currency, the loss of Russia revenue, and the most significant impact coming from production issues driven by China lockdowns. We assume revenue of ~$81B take these factors into consideration. The production issues ought to be transitory – and they occur at the best possible time of the year during the weakest seasonal period ahead of fall launches. We think that sets September up well assuming China normalizes. We, however, consider FX and Russia to be more permanent, and now fear that Apple may need to raise prices in local currency when new products launch in the fall, if exchange rates don’t change by then. When that’s happened in the past, rising local prices have a negative effect on unit demand. Finally, Services are expected to grow but decelerate y/y, something we think that’s been anticipated but remains a factor.