Apple's growth in services category is 'the positive takeaway' from earnings: Analyst

CFRA Research Senior Equity Analyst Angelo Zino joins Yahoo Finance Live to recap the top takeaways from Apple earnings, iPhone demand, and the tech giant's services revenue.

Video transcript


DAVE BRIGGS: All right, an earnings alert-- Apple shares trading down just about 4% after earnings. For more on Apple, let's bring in Angelo Zino, CFRA Research Senior Equity Analyst. Good to see you, sir. The headline for some largest quarterly revenue decline since 2016, what is your headline?

ANGELO ZINO: Yeah, as far as Apple is concerned, I think we've got to put it into context a little bit. We're talking about a revenue decline of about 5% on a year-over-year basis. But you think about what's been going on within the broader hardware space in the December quarter. You're talking about PC sales and the broader PC market down 25% to 30% in the December quarter. You're talking about smartphone sales in the December quarter down about 15% to 20% overall.

So when of look at Apple's numbers here, I think we got about down 8% for iPhones, definitely below expectations. But at the end of the day, I think to us pretty much expected an unfavorable type of market in December quarter as well as into the March quarter before things start improving. So not necessarily surprised by the weakness here.

I do think the positive takeaway-- I think you guys alluded to-- was on the services side of things. That's a number you can trust because you're not worried about supply constraints necessarily there. So I think that is the positive takeaway to take here from the actual numbers.

DAVE BRIGGS: Some of the takeaways from the release that came out, Angelo, navigating a challenging environment, saying that they had a difficult macroeconomic environment, significant supply chains that they're navigating as well right now. What is the tone that Tim Cook and the executive team needs to signal on the earnings call to really shore up or continue to shore up confidence in Apple and navigating this tough period?

ANGELO ZINO: Yeah, I think, listen, as far as the long term is concerned, I don't think there are many investors out there that are too concerned about Apple. I mean, clearly, what we do maybe want to get a little bit more clarity about is what the replacement cycle looks like right now, as we just had two really great cycles with the rollout of 5G back with the iPhone 12 and 13.

Now when you think about here as far as the guidance is concerned in any type of commentary here in the near term, clearly, investors want to know what's going on with the iPhone 14, especially the higher-priced devices on the Pro side of things, as we go into the March quarter postsupply constraints. So any type of clarity on that side of things, I think, is going to be very helpful and something that probably the stock is going to move on more than what we're seeing right now with the actual results.

SEANA SMITH: And, Angelo, from your channel checks, from your analysis, what are you expecting there? Because, clearly, production issues a massive headwind here for Apple in their very important holiday period. Going forward, though, do you think those consumers who weren't able to get their hands on phones, are they going to order in the current quarter, or those just orders lost at this point?

ANGELO ZINO: So we don't necessarily think they're orders lost. But I think we're a little bit more conservative than the rest of the Street is. I think we're about 2% to 3% below the Street as far as the March quarter is concerned.

Our view is there are probably going to be more consumers than they think that are probably going to hold off until the iPhone 15 cycle because some of the softness that's out there on the macro side of things, specifically out in Europe and even potentially out in China. So we think there are going to be some consumers out there that are willing to wait for the next iPhone 15 cycle.

DAVE BRIGGS: Tim Cook telling CNBC three things really impacted the results-- the strong dollar, the production issues out of China, and the macro environment. Which of those three do you think impacted the results the most, Angelo?

ANGELO ZINO: It's tough to really say. I mean, listen, they're all headwinds. I'd say the supply constraints out there, probably the biggest impact and then the macro factors out there. And I think just at the end of the day, it's really what the consumer is doing today. I mean, more consumers out there are clearly spending on experiences relative to actual hardware purchases.

And we see it just on the Mac numbers here. You're talking about a 29% decline year over year, clearly, across very difficult comps out there. But when you start thinking about what's going on the broader side of things, not only Apple-specific, there's clearly a shift in what's going on with the consumer now. You're going to get to see them lap some of these very difficult issues in the second half of this year, which is why we do like the stock right now.

By the second half of this year, you're talking about a favorable forex landscape. You're talking about easier comps as you lap some of the supply constraints later this year that you just saw in the December quarter. So, overall, I think the setup for Apple actually looks pretty favorable. And they're going to continue to be very aggressive with those buybacks.

We're looking at an annual run rate of about $90 billion a year. We think they keep that in check when they report their March quarter results later in a couple of months.

SEANA SMITH: It's hard to bet against Apple here going forward. Angelo Zino, always great to have you. Thanks so much.