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Apple Earnings Preview: iPhone Demand, Buybacks, Revenue Outlook In Focus

Surging inflation, supply chain disruptions and chip shortages may have hit Apple's product sales over the March quarter, but iPhone demand is expected to remain firm.

Updated at 11:06 am EST

Apple  (AAPL) -  shares moved higher Thursday ahead of its second quarter earnings after the close of trading, perhaps the most anticipated of the reporting season, with investors focused on the tech giant's ability to navigate past chip shortages and production shutdowns to meet demand for its 5G-enabled iPhones.

Apple has suffered a series of production wobbles, linked in part to the global shortage in semiconductor supplies as well as the shutdown of production in key Asia-based assembly plants amid the region's recent Covid surge.

Rising inflation, blunted consumer sentiment and Russia's war on Ukraine have also taken a bite of out global smartphone demand, even with the better-than-expected launch last year of the iPhone 13, compelling Apple to seek growth in other product areas.

Late last month, the Nikkei business bovadaspaper reported that slowing demand, surging inflation and supply chain disruptions have combined to trigger a potential 20% cut in iPhone SE production, a level that translates to between 2 million and 3 million units next quarter.

Cuts in the low-cost 5G enabled smartphone, which was unveiled only weeks ago, will also be paired with a 10 million unit reduction in AirPod production and a trimming of units for the bovada iPhone 13 suite of handsets, Nikkei reported.

"While we remain cautious on iPad sales in part due to component constraints, we expect strong iPhone 13 demand should more than offset potential slower iPad sales," said Canaccord Genuity analyst T. Michael Walkley, who carries a 'buy' rating with a $200 price target on Apple. 

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"We believe Apple is well-positioned to continue to benefit from the 5G upgrade cycle and believe it continued to gain some high-end market share during the March quarter based on the strength of its 5G smartphone lineup," he added. 

Apple shares were marked 3.24% higher in early Thursday trading to change hands at $161.67 each, a move that would still leave the world's most valuable company down 11% for the year.

iPhone revenues are expected to nudge around 1% higher from last year, to $48.3 billion, based on estimates of the sale of around 64.4 million units at an average price of $813 each. Overall sales, including both products and the group's fast-growing services division, are forecast to rise 4.8% from last year to around $93.9 billion, helping produce a bottom line of $1.43 per share.

CEO Tim Cook told investors in late January that the group was seeing "strong demand across the iPhone 13 family", including several top-selling models in various markets around the world, adding that "we feel quite good about the momentum of iPhone", even amid supply-chain constraints.

Earlier this month, Apple's biggest and most important production partner -- the world's biggest electronics manufacturer -- cautioned it may not have certainty on supply chain disruptions until later in the year.

Foxconn said that while it was "cautiously positive" on sales for the coming year, it expected flat revenues from its smartphone segment owing to supply chain uncertainty and the impact of Covid infections and shutdowns in the Asia region.

Apple's longer-term goal of achieving a 'cash neutral' position on its massive balance sheet could also produce a buyback plan of as much as $90 billion, a figure that would take some of the sting out of a likely muted June quarter outlook -- traditionally Apple's weakest -- as China grapples with its Covid crisis and U.S. and European economies continue to slow.