Apple tumbles as supply chain snarls mar forecast in Cook's last earnings as CEO
By Aditya Soni and Rashika Singh
Apple's Disappointing Forecast and Market Impact
July 31 (Reuters) - Apple shares fell nearly 10% on Friday after a disappointing forecast showed that the iPhone maker was struggling to secure enough components as the AI-driven data center boom strains global supply chains.
Stock Performance and Market Capitalization
The drop, if sustained, would mark the stock's worst day since the pandemic-driven selloff in March 2020. It would erase nearly $500 billion from Apple's market capitalization and return the crown of the world's most valuable company to AI chip giant Nvidia, days after reclaiming it.
Tim Cook's Final Earnings Call as CEO
Tim Cook, widely hailed as a supply-chain genius, called the shortages "very significant" and said Apple had limited options to address them, speaking on his final earnings call as CEO before handing the reins to John Ternus in September and becoming executive chairman.
Industry Reactions to Supply Chain Issues
"If even at Apple's scale they are saying they are out all supply chain flexibility, it's really bad for everyone," said Ben Bajarin, CEO of tech consultant Creative Strategies.
Global Supply Chain Strain and Its Effects
Big Tech has been scooping up advanced chip-making capacity and memory chips to power its AI data centers, sparking shortages and price increases that are expected to shrink both the personal computer and smartphone markets this year.
Apple's Response to Component Shortages
Apple had cushioned some of the blow from surging memory costs by drawing on stockpiled inventory, but Cook said that the buffer was fading and shortages of processors were keeping it from meeting strong demand for iPhones and Macs.
Revenue Forecast and Analyst Expectations
Its forecast on Thursday for revenue growth of between 9% and 11% in the current quarter fell short of Wall Street's roughly 12% estimate, and softer growth in its services business also overshadowed otherwise strong June-quarter results.
Services Weakness Worries Investors
SERVICES WEAKNESS WORRIES INVESTORS
The services weakness worried investors as it came during a stretch of strong iPhone sales, which typically feed the business that takes a cut of App Store purchases and includes everything from Apple Music to Apple TV.
Potential Impact of iPhone Price Increases
That slowdown could deepen if iPhone sales take a hit from a price increase that many analysts expect during the launch of the new lineup, which typically happens in September.
Analyst Perspectives on AI and Supply Chain Leverage
"Apple's leverage over the supply chain appears to be in question and it's not clear that AI is serving as any measurable tailwind to products or services, with its future monetization impact still uncertain," Morgan Stanley analysts said.
"In fact, one could argue App Store softness might even be a result of AI re-prioritizing customer time."
Mitigating Factors and Analyst Opinions
Still, some analysts said that the iPhone has weathered price hikes before without denting demand significantly and that a recent U.S. leasing deal with Klarna that offers monthly plans for Apple's devices could soften the blow.
Stock Price Targets and Market Outlook
At least four brokerages cut their targets for the company's stock price, while three raised. That moved the median view to $330, which is $3 lower than the last closing price, according to LSEG data. The stock has risen 22.7% this year as of Thursday's close.
(Reporting by Rashika Singh and Kanishka Ajmera in Bengaluru; Editing by Mrigank Dhaniwala and Anil D'Silva)
