Apple Earnings Preview: A Yellow Flag Has Been Raised

Mac sales have been through the roof since the start of the pandemic, but the growth pace may be slowing down fast. Here is what to expect of the Mac on Apple’s upcoming earnings day.
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The Apple Maven continues to preview Apple’s fiscal third quarter earnings season. Up to this point, we have addressed the following topics:

  1. Wall Street’s expectations for revenues and earnings;
  2. The expected performance of the iPhone in the quarter;
  3. How the iPad could be the star of the show this time;
  4. What history says about trading AAPL around earnings day.

This time, we turn to a less encouraging piece of news regarding the Mac segment. Research company IDC reported that the increase in personal computer shipments continued in the second calendar quarter of 2021. However, growth has decelerated sharply from the previous quarters.

Could this be the end of a period of dizzying growth in Mac sales? And if so, will Apple stock  (AAPL) - Get Apple Inc. (AAPL) Report take a hit?

Figure 1: New Mac lineup.

Figure 1: New Mac lineup.

(Read more from the Apple Maven: History Says: Buy Apple Stock Before Earnings)

Good news first

IDC’s numbers on Q2 PC sales can be interpreted in a couple of ways. The good news is that shipments increased by 13% year-over-year. This is not bad, considering that desktops have been disrupted by laptops, which in turn have been disrupted by powerful mobile devices in the past years.

Also, keep in mind that the supply chain has been impacted by the shortage in tech components, as global economies jumpstart their activities following the worst of the pandemic. On top of 11% growth in Q2 of last year, the most recent quarter’s numbers seem far from disastrous.

Now, the bad news

That said, Apple did not look particularly good on IDC’s most recent report. First, the Cupertino company is believed to have lost market share since this time last year: 7.4% vs. 7.6%. The sub-10% growth in Mac shipments only lagged the performance of HP’s devices among the top 5 vendors (see table below).

Figure 2: IDC quarterly personal computing device tracker, July 12, 2021.

Figure 2: IDC quarterly personal computing device tracker, July 12, 2021.

Second, from an investor sentiment perspective, Apple may have the most to lose. The Cupertino company delivered jaw-dropping growth in the Mac segment in 2020, leading some to believe that substantial market share gain was possible. Now, the bar has been set high – see chart below.

To fight increasingly tough comps in the next four quarters, Apple will have its disposal a refreshed lineup of MacBook Air, Pro, Mac mini and iMac, all equipped with the new M1 chip and updated within the past eight months. Whether the renewed product portfolio will be enough to maintain momentum in Mac sales through the next year remains to be seen.

Figure 3: Mac YOY growth since fiscal 2019.

Figure 3: Mac YOY growth since fiscal 2019.

(Read more from the Apple Maven: Could The iPad Be Apple’s Best Performer in Fiscal Q3?)

Recent price action

On a day that saw the S&P 500 and the tech-rich Nasdaq rise 0.3% and 0.2%, respectively, setting new all-time highs, Apple stock dropped 0.4% on July 12. The decline in share price may have been driven primarily by the Mac news.

Another possibility, however, was the G20’s efforts over the weekend to enact a global minimum tax plan that would impact Apple directly. This may also explain why peer Amazon saw its share price decline modestly on a green day for the broad market.

Twitter speaks

Per research shop IDC, PC shipments increased year-over-year in the second quarter, but growth has decelerated sharply. Are you concerned about Apple’s ability to keep Mac sales momentum in the next few quarters?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)