Insights

Supply Chain Constraints Ease as Apple Reports $83 Billion in Revenue

One of the side effects of the coronavirus pandemic has been a wave of supply chain disruptions. Governments worldwide have maintained varying degrees of quarantine orders for folks who test positive for COVID-19. An outbreak at a manufacturing facility could halt production for weeks. 

Apple (NASDAQ: AAPL) warned investors that supply chain constraints could cost the tech titan up to $8 billion in missed sales in the quarter that ended in June. Thankfully, the disruptions were less than expected, and Apple pleasantly surprised investors by delivering $83 billion in revenue in its recently completed quarter.

Supply chain impact at less than $4 billion

It’s no surprise that Apple’s stock was up by more than 3% on the day following the earnings announcement. Apple’s $83 billion in sales were hardly greater than the $81.4 billion it reported in the same quarter the prior year. However, investors feared it would be worse after Apple warned of the potential for $8 billion in headwinds from supply chain constraints.

In the conference call that followed the earnings release, Apple CEO Tim Cook said, “Our supply constraints were less than we anticipated at the beginning of the quarter, coming in slightly below the range [$4 billion to $8 billion] we discussed during our last call.”

Moreover, CFO Luca Maestri said: “We believe our year-over-year revenue growth will accelerate during the September quarter compared to the June quarter, despite approximately 600 basis points of negative year-over-year impact from foreign exchange. On the product side, we expect supply constraints to be lower than what we experienced during the June quarter.”

The U.S. dollar has appreciated against a basket of foreign currencies, which makes Apple’s sales from international markets worth less when converted into dollars. That said, currency fluctuations are an ordinary course of business, and investors need not worry about their movement. More importantly, Maestri noted that supply chain constraints would be less than in the June quarter, which, going by earlier statements, will be less than $3 billion. 

AAPL Revenue (Quarterly) data by YCharts

Consumer demand for Apple’s products has been resilient. If the situation can keep improving on the supply side, Apple is setting itself up for an excellent holiday quarter (which is two quarters from now). To put that potential into context, in the quarter that ended in December last year, Apple reported sales of $124 billion. It would not be surprising to see Apple hit $130 billion in this year’s Q4.

It could be an excellent time to buy Apple stock 

AAPL PE Ratio data by YCharts

If these excellent near-term prospects are making you consider buying Apple stock, it wouldn’t be a bad idea. Trading at a price-to-free cash flow ratio of 25 and a price-to-earnings ratio of 26, it’s relatively moderately priced. Paying a reasonable price for an excellent business can be a great way to build wealth over the long term. 

Parkev Tatevosian has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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