Key insights
- Apple's strong Q2 revenue guidance (14-17% growth) is driving positive after-hours movement. However, rising memory costs raise questions about margin sustainability. Apple's ability to maintain 48% margins despite cost pressures suggests potential price increases, which may be driving the higher revenue guidance without necessarily improving operating income. This could signal broader inflationary pressures within the tech sector.
Apple's up about 3% after hours after issuing unexpectedly high Q2 revenue guidance (14-17% revenue growth vs 9% expected). It also mentioned that margin % would remain consistent at around 48%.
However, at the same time, it mentioned that memory costs are rising. From the earnings transcript:
"I can tell you that beyond the June quarter, we believe memory costs will drive an increasing impact on our business and we'll continue to evaluate this"
So with memory costs set to increase significantly enough that it's worth calling out in the transcript, how is Apple able to maintain 48% margin?
They must be raising product prices to maintain margin %. Let me know if I'm thinking about this too simply, but did they guide revenue higher just because they're going to implement unexpected price increases in response to rising costs? They may have guided revenue higher, but they didn't say operating income would increase as well.