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Apple ‘can’t supply enough’ — and that’s a good problem, analyst says

Citi Managing Director in Equity Research Jim Suva joins Yahoo Finance Live to discuss Apple earnings, the company’s subscriber base, product demand and supply, investor sentiment, inflation, and the outlook for Apple.

Video transcript


- Guys, second thing you need to note-- that's the last thing I need to do is be on a yellow boat. Anyway, the second thing that you need to note today-- Apple shares in focus following a miss on the top and bottom lines. The tech giant failed to meet expectations on iPhone and wearable sales.

Joining us now to dive into the number, we've got Jim Suva, Citi Managing Director in Equity Research specializing in technology. Jim, you were on Apple's earnings call yesterday. You got a chance to lob some questions in to Tim Cook. Brian and I gave our vibes and our vibe check after the call. I want to know the vibe that you took away from what Jim-- or what, excuse me, Tim-- what Tim and Luca had to say.


JIM SUVA: Hey, it's great to see you, my friend, Brian and Brad and Julie, all on the show today. Importantly, the big takeaway is this. Foreign exchange has materially hurt Apple. And then the second negative was the China COVID production closedown.

When you remove all that-- and take a step back and look at the big picture-- Apple subscriber user base is still growing. The number of active devices which are being used is now over 2 billion, with a B. And the number of iPhone users is over 1.2 million.

And so we're really looking at this really important way of things being set up here. When we look at, again, the active number of devices-- it's actually 2 million. I said 2 billion, but 2 million-- I'm sorry, it's 2 billion with a B. And it's important to note that these are actively users that are using subscribers and service and all that.

But the takeaway is FX hurt, and let me quantify you that. Eight percentage points of FX hurt in the December quarter, and five percentage points in the March quarter-- if you remove all that, Apple is still growing in reported terms. And importantly, their subscriber base is growing.

This is important. This is why we're sticking with our buy rating, and $175 target prices are showing it correctly.

- So, Jim, OK, if FX was largely to blame here, I just think of Apple as typically managing all of this better. And I don't just mean managing its currency hedging. I mean managing you folks, managing the analyst community, right? I mean, in terms of managing expectations, is that-- like, what happened here on that front?

JIM SUVA: Well, importantly, since COVID hit, Apple has stopped giving forward quantitative guidance. They've given more color on the conference call. You heard that Luca, the CFO, and Tim gave some color, or some qualitative guidance--

- Is that a--

JIM SUVA: --into the March quarter--

- --bad decision, though? Is that a bad decision given what we're seeing today? Does Apple need to bring that back?

JIM SUVA: Julie, in a world where we have unemployment challenges, FX challenges, supply chain challenges, I don't think it is. I don't think anybody has a crystal ball right now. I think giving less guidance right now is fine. When the visibility comes back, then we should expect some more.

But for right now, the qualitative guidance was just fine. And then, on the callbacks, it's important to note that people start to be able to ask some more pointed questions. But simply put, numbers are coming lower. But it's mostly due to FX and the production issues.

Look, the problem is Apple can't supply enough. Demand is here, and supply is here. That's a good problem to have when demand is way above supply.

- Jim, you know, hang with me here. I'm gonna plug myself. The most-read story on Yahoo Finance right now is one that I wrote this morning, "Apple Stock Gets Nailed as CEO Tim Cook Spooks Investors with One Phrase." Now, if you click through, that one phrase is "challenging economy." Cook and his CFO mentioned it seven times on that earnings call last night. How concerned were you about their commentary on the global economy, and how would a recession impact this company this year?

JIM SUVA: So first of all, that's a very well-written article. So I can see why it's--

- Well, that's why I'm here. --being read.

- That's why I get those big checks, Jim.

JIM SUVA: But I can tell you this. The economic uncertainty-- look, you look at the Fed interest rates the other day. You look at the employment data this morning. And you're getting a lot of data points that are coming in that aren't all on the same page. You have inflation. You have clothing, housing, gasoline costs that are going higher, natural gas that are going higher.

You're gonna get hit with a big freeze in the New York area this weekend. And people are gonna turn on their heaters a lot. There's a lot of cost and dynamics that are changing. It's a very fair and honest way to assess things. And I think that's why people are reading it.

- And so if you were an investor looking at Apple today trying to evaluate if this is the time to get in or if you should be waiting for another shoe to drop, what do you say to that investor?

JIM SUVA: I think you should buy the stock here. And the reason why is the world is getting past some of the COVID closures-- the worst, the death, the illnesses, the how society reacts, the worst of it's getting behind us. Production is coming back on. The supply chain bottlenecks are getting better. And Apple is continuing to innovate.

You know, we expect them to launch an AR/VR headset later this year. We expect them to have a foldable phone next year. I think that foldable phone will be great where you can, on the top, look at Yahoo Finance, and on the bottom, be reading your emails. I think that will be a great phone to have. They're working out some of the kinks on it. That will be for next year.

But the reason why that's important this year is people will start to look ahead to say, hey, where's the innovation? The innovation is still coming there. We think it's a great opportunity to buy the stock on this little bit of a pullback here.

- Jim--

JIM SUVA: The pullback's not been big. But Apple's high quality.

- Jim, but why launch unproven products at a time where consumers are already pushing back and the discretionary spend is souring?

JIM SUVA: Well, when you think about unproven products, first of all, we're talking about late this year. And come the Worldwide Developer Conference in June, they typically focus on software. When you think about a VR/AR headset, of taking a picture of your showroom, of your kitchen, of your dining room, and reinventing it by moving things around virtually, there's a real business case application.

It's more than just gaming. It's education, doctors, nurses, different pilots and fields that can be educated. We think it's pretty excited. But right now, what matters most is iPhone and the company's subscriber base, and they are growing.

- I don't know. I'm looking forward to looking at Yahoo Finance on the top of my folding phone, Jim, soon.

- Me too, and we work here. I'm so excited.

- Citi Managing Director Jim Suva, thanks so much for your perspective this morning. Really appreciate it.