Munster's Take On 'Gravity-Defying' Apple's Q3 Results: iPhone Stronger Than 'Acre Of Garlic,' Guidance In Line, Softness In Services

Zinger Key Points
  • Apple's 3% year-over-year revenue growth is more than impressive, says Gene Munster.
  • The Mac softness is transient, and consumers are holding off on Watch and AirPods.

Apple, Inc. AAPL reported late Thursday fiscal-year third-quarter results that exceeded muted expectations.

Apple is “defying gravity and powering through the early stages of the macro downturn,” Loup Fund’s Gene Munster said, commenting on the quarterly results.

iPhone Now A Necessity: CEO Tim Cook said on the earnings call there was no evidence of a macroeconomic impact on iPhone sales during the quarter besides forex, the analyst-turned-tech veture capitalist said.

The 3% iPhone revenue growth is more impressive than its sounds, given it has come against a tougher 50% comps, he said. 

“The iPhone is stronger than an acre of garlic,” Munster said.

The iPhone has now transitioned from being a luxury product to an essential one, he said, adding that what is noteworthy is that iPhone buyers, though feeling the pressure of inflation, are deciding to spend on the iPhone.

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Guidance Not An Area Of Concern: Apple’s guidance issued on the earnings call suggests an acceleration in revenue growth in the September quarter despite the 600 basis points of negative forex impact from a year ago, Munster said.

The September quarter revenue growth, he said, could be at least 3%, factoring in a 6% forex headwind.

Excluding the forex impact, revenue growth would be at least 9%, essentially in line with the 8% growth Street is estimating, he said. 

Apple also noted that the negative impact from supply chain constraints will be less than the $3 billion for the third quarter, Munster said. 

The Loup exec said he expects Street estimates for the fourth quarter to come down. Gross margin guidance of 41.5%-42.5%, though softer than the consensus estimate, is still impressive, he said. 

Related Link: Apple's Challenges Go Beyond Latest Economic Concerns; Why This Analyst Feels Cupertino Can Bounce Fairly Quickly

The Blemishes: Services and Mac revenues slightly missed estimates, Munster said. He is of the view that Services revenue was essentially in line and the Mac headwind will be temporary.

Wearables, Home and Accessories missed estimates by 10%, with Apple blaming the shortfall on forex, supply constraints and the loss of business in Russia.

“I believe there was a fourth contributor to the softness. Watch and AirPods are not essentials, so consumers are holding off,” Munster said.

A Launch-Heavy Year Ahead: Apple is expected to ship 11 new products in the fiscal year 2023, more than the typical seven to nine, Munster said. 

"The conversation on Apple will soon shift to the FY23, and investors will likely conclude that Apple is in front of what will be a favorable new product year,” he added.

Beyond 2023, there are other potential growth areas, including health, AR/VR headsets and potentially something in auto.

Apple shares were adding 2.32% to $161 in premarket trading Friday, according to Benzinga Pro data.

Photo courtesy of Apple. 

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