APPLE Recovery Hangs on Volumes

How much has the world's largest company by market cap been affected by slowing smartphone demand, and is a recovery expected?

The Trouble Starts in China

Apple's performance of late has been mixed. While the share price decreased over the prior year, it still outperformed the market. But in China, which is slowly becoming Apple's largest market, the company saw a dramatic drop in sales. Smartphone sales plummeted to the lowest levels seen in a decade, largely due to strict lockdowns over covid, which interrupted both buying and manufacturing. But within that context, Apple outperformed and gained market share as global smartphone shipments fell. 

Now that China has reopened, and there are differing views on what will happen with the global economy this year, the focus could shift to the company's outlook. Apple typically doesn't provide formal guidance in the first quarter, but investors will likely scrutinise the CEO's comments for potential indications of a sales recovery. The focus might be on mentions of cost-cutting, as many companies in the space have been cutting jobs to prepare for economic headwinds.

Getting the Revenue and Volume Right

Numerous reports have shown that Apple has been facing slowing demand for its Macbooks and iPhones. This isn't all that surprising in the context of high inflation and shrinking real wages, particularly for products that are priced at the higher end of the range. But Apple's bottom line is increasingly being supported by its services division, such as cloud and Apple TV. Those divisions have significantly higher margins.

Still, iPhone sales represent the majority of revenue for the company (52.1%). Inventors will likely focus on the difference between revenue and volume, as higher prices might offset slowing sales. Apple is expected to report earnings of $1.94 on sales of $121.8B.

Can the Short-term Trend Persist?

Apple's share price has soared from a low of $124 on January 3rd to a high of $148 just last Friday, recording fourteen positive sessions out of seventeen. Recently, the stock breached the upper descending channel trendline, exiting a medium-term trend with the potential at $175 increasing. Bulls must recapture $153 and $164 in the meantime. 

With an overextended rally, pullbacks could be expected in the near term. $138 is a reasonable correction low, but if lost, it could pave the way to $124, invalidating the short-term upward trend. This would require the interim base at $133 to succumb to bearish pressure.

Source: Spreadex

Key Takeaways

Apple's sales have declined in China, but the company has gained market share while outperforming the market. The company is facing slowing demand for its products, particularly in China with its reopening, but its services division is doing well. Apple is expected to report good earnings this quarter, with inventors most interested in the difference between revenue and volume.