Apple, Amazon, Intel – Three strikes.

Apple FQ2 22 – Rug sweeping

• Apple reported good results but warned on FQ3 22 blaming the supply chain, but I suspect that there is also a degree of softness in demand triggered by inflation that is causing the weakness.
• FQ2 22 revenues / EPS were $97.3bn / $1.52 nicely ahead of forecasts of $94.1bn / $1.43 but forward-looking commentary was disappointing.
• It seems that the supply chain issues have finally hit Apple and the company is forecasting a hit of $4bn – $8bn in lost revenues during FQ3 22.
• iPad was weak but this is not a big surprise as the commonality of components has allowed Apple to prioritise iPhone over iPad.
• However, I suspect that there is a little more to this as inflation and widespread Chinese lockdowns are taking their toll, meaning that consumers may be deciding to delay their next iPhone purchase and use their old one a little longer.
• There are also signs of softening in smartphones which is why Qualcomm’s diversification into other areas is bearing fruit just at the right time.
• Apple has also diversified just at the right time as its services business continues to do very well and its content is also starting to see some traction with both critics and viewers.
• Apple is no longer a value stock and is priced for growth that is looking increasingly hard to come by which is why I am still happy to steer clear of it.

Amazon Q1 22 – Overstretched.

• Amazon reported disappointing results as consumers tightened their belts leaving Amazon’s expansion over the last couple of years looking somewhat overdone.
• Q1 22 revenues / EPS were $116.4bn / LOSS$7.56 compared to forecasts of $116.4bn / $8.22.
• This clearly demonstrates that Amazon (and the market) were expecting stronger revenues which has left Amazon overstaffed and over resourced during Q1 22 which led to the large swing back into the red.
• Growth fell to just 7.3% YoY which is pretty much an all-time low and another indication that rampant inflation triggered by money printing and Covid-related bailouts are taking their toll.
• This is reflected in Q2 22 guidance where revenues / EBIT of $116.0bn – $121.0bn / LOSS$1.0bn – $3.0bn is expected which is behind estimates of $125bn / $6.8bn.
• Amazon’s valuation has come down a long way but not far enough to justify these growth numbers and the wild swings between making and losing money.
• It looks to me like Jeff Bezos made another smart decision to exit at what increasingly looks like the top.

Intel Q1 22 – Continues to struggle

• Intel reported reasonable earnings but pushed all of its 2022 hopes onto new products in H2 2022 which is likely to only increase further the doubts about whether Intel is going to recover to its former glory.
• Q1 22 revenues / adj-EPS were $18.4bn / $0.87 compared to estimates of $18.3bn / $0.79 but guidance for Q2 was soft with Q2 22 revenues / adj-EPS of $18bn / $0.70 below forecasts of $18.5bn / $0.73.
• Intel has kept its FY guidance unchanged stating that it expects that its new products in H2 22 will cause demand to pick up enough to meet its targets.
• Customers are unwinding inventories and gross margins remain under pressure which reminds me of the situation that Lucent faced in 1999 and 2000.
• This was the height of the internet bubble where anyone making telecom equipment could sell everything they could make and earn good margins at the same time.
• Lucent could not stop losing money during this period and remains to this day one of the worst run companies I have ever covered.
• I am not saying Intel is even close to this category but in this climate of acute semiconductor shortage, its products should be flying off the shelves as fast as it can make them, and gross margins should be rising.
• Add this to the uncertainty around the future of the x86 processor and the extreme scepticism with regards to the turnaround that I encountered when touring Intel’s back yard and things are not looking too good right now.
• Hence, I think the shares can easily go lower than $44 as this is no longer 9x 2022 PER but 14.3x 2022 PER.
• At this price, I have a strong preference for Qualcomm and MediaTek both of which trade around this level and where things are going much better.