Apple has a ‘good problem’ with supply chain issue, Citi analyst says

Wall Street is fiercely defending Apple (AAPL) stock after the company’s earnings call Thursday evening triggered a sell-off on concerns about inflation and supply chain bottlenecks.

“They’ve got what I call a good problem — the problem being demand outpacing supply,” Citi analyst Jim Suva said on Yahoo Finance Live (video above). “They could have hit even higher revenues. They beat earnings [estimates] by 6%.”

Suva, who reiterated an outperform rating on the stock, highlighted that Apple has also increased pricing on its products.

“When you go into stores during supply chain shortages, you can bet Apple is going to be stocking the higher-memory, higher-priced iPhones and iPads there,” he said. “So that’s why we believe the Apple stock isn’t down that much. We view this pullback as a buying opportunity.”

‘Everything’s getting hit’

Shares of Apple fell 2% in trading on Friday after the tech behemoth warned on its earnings call that it would see a hit in the “$4 billion to $8 billion range” during the current quarter as the industry faces ongoing silicon shortages and China locks down entire cities to mitigate the spread of COVID-19.

Apple CEO Tim Cook sought to temper concerns from Wall Street and talk up the company’s demand momentum with consumers.

“These constraints are primarily centered around the Shanghai Corridor and… on a positive front, almost all of the affected final assembly factories have now restarted,” Cook said on the earnings call. “And so the range, the $4 billion to $8 billion range, reflects various ramps of getting back up and running. We’re also encouraged that the COVID case count that’s been reported in Shanghai has decreased over the last few days, and so there’s some reason for optimism there.”

A person passes a large outdoor advertisement for the Apple iPhone 13 Pro on April 11, 2022 in Wuhan, Hubei province, China. (Photo by Getty Images)

The tech giant’s ticker page was the most active on Yahoo Finance, highlighting surprise at Apple’s commentary on costs. Though some analysts downplayed the stock’s move lower.

Manhattan Venture Partners Head of Research Santosh Rao told Yahoo Finance Live on Friday that the move was an “overreaction” given Apple’s otherwise strong results. Rao said the stock was “holding up well” despite “the downdraft of the tech sector — everything’s getting hit.”

The warning on costs masked a good quarter for Apple amid demand for new high-powered Macs and fitness services. Here is how Apple performed compared to Wall Street estimates for the quarter:

  • Revenue: $97.3 billion versus $93.98 billion expected

  • Adjusted EPS: $1.52 versus $1.42 expected

  • iPhone revenue: $50.57 billion versus $49.16 billion expected

  • Mac revenue: $10.44 billion versus $9.23 billion expected

  • iPad revenue: $7.65 billion versus $7.19 billion expected

  • Wearables revenue: $8.81 billion versus $8.98 billion expected

  • Services revenue: $19.82 billion versus $19.78 billion expected

Cook’s sales job seems to have gone over well, judging by Wall Street’s favorable views.

“We remain impressed with Apple’s gross margins in a challenging market environment,” Deutsche Bank analyst Sydney Ho said, adding: “with services continuing to outgrow the rest of the business and Apple benefitting from a mix shift towards higher-margin products, we believe the company can sustain these better gross margin levels going forward.”

Ho also maintained a buy rating on Apple shares.

Brian Sozzi, a former Wall Street analyst, is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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