Apple Inc. is struggling with a shortage of vital chips that manage power consumption in iPhones and other devices, raising concerns over its ability to meet peak holiday demand for the latest launch of its smartphone, Bloomberg reported.
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According to the report, it is unclear to what extent, the shortfall may constrain iPhone availability during its crucial launch quarter, which is Apple’s (AAPL) busiest period. Increasing demand for silicon across a range of products and Covid-19 supply-chain disruptions are the main reasons for the shortage.
Apple’s main chipmaker Taiwan Semiconductor Manufacturing Co. said in October that 5G smartphones require 30% to 40% more chip content versus 4G. That and a resurgence in Covid-19 cases is prompting customers to cache components for fear of running out, especially after smartphone maker Huawei Technologies Co. had stocked up massively ahead of a September deadline for US sanctions, Bloomberg reported. On top of that, disruptions are expected to continue over the next two quarters.
Last week, Apple reported a record September quarter, although investors were disappointed by weak iPhone sales. Specifically, Q4 GAAP EPS of $0.73 beat Street estimates by $0.03. Meanwhile revenue of $64.69B was up 1% year-over-year, and topped consensus expectations by $1.36B. iPhone sales generated $26.44B, which were lower than the 27.73B consensus due to this year’s delayed iPhone announcement.
In reaction to the earnings results, Goldman Sachs analyst Rod Hall cut the stock’s price target to $75 (35% downside potential) from $80 and maintained a Sell rating, as he expects just single digit sales growth for iPhone in Q1, which he said would be below the high 20s percentage growth needed to keep up with last year’s Q4 plus Q1 cycle.
Hall noted that Apple’s management comment “points toward the weaker 5G iPhone cycle we have been forecasting rather than the ‘Super Cycle’ expected by consensus.” (See AAPL stock analysis on TipRanks)
Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 24 Buys, 8 Holds and Goldman’s Sell. With shares up 57% year-to-date, the average analyst price target of $127.21 implies upside potential of another 11% to current levels.
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