So why did Apple’s stock fall 2% in mid-day trading Friday?

Because the world’s most valuable company lowered its current-quarter income estimates by $4 billion to $8 billion, largely the result of COVID-related shutdowns hitting manufacturing suppliers in China. While Apple CEO Tim Cook sounded an optimistic note on Chinese plants returning to full capacity soon, he warned that the outlook remains unpredictable.

The downbeat forecast punctuated a common thread of this earnings season for top tech companies. A sense of dread looms over the second quarter of the year, with virtually no firm spared from the effects of inflation, supply chain constraints, COVID-induced work stoppages, war in Ukraine, and shifting consumer demand.

While these complicating factors certainly aren’t new, top tech executives spent the past few weeks hollering about a fresh wave of hurt. 

Four companies that boomed during the pandemic—Amazon, Netflix, PayPal, and Roku—all issued softer outlooks for the rest of 2022, partially citing a decline in usage as consumers return to pre-shutdown routines.

Several companies reliant on digital advertising—including Alphabet, Twitter, Meta, and Snap—fell short of first-quarter revenue estimates, mostly because of soft sales tied to economic and geopolitical conditions that aren’t abating.

“We are concerned that the operating environment ahead could be even more challenging, leading to further campaign pauses or advertiser budget reductions,” Snap CFO Derek Andersen said.

The semiconductor supply outlook continues to dim, as well. Tech executives opened the year by predicting a chip shortage reprieve might arrive later this year, but that optimism is quickly waning. 

Intel CEO Pat Gelsinger now forecasts the shortage will drag into 2024, citing a lack of manufacturing equipment needed to keep pace with fast-rising demand. Cristiano Amon, CEO of chip maker Qualcomm, said his company will “still have more demand than supply across all business” beyond the first quarter. Cook skirted around a question during Apple’s earnings call Thursday about semiconductor availability.

“I don’t want to predict that because that entails knowing how worldwide demand and supply are for industries outside (ours), or even the industry we’re in,” Cook said.

The complicated global economic landscape also prompted notes of caution from top executives. 

Tesla CEO Elon Musk predicted that generationally high inflation, which forced the company to raise prices on its vehicles, likely will continue “at least the remainder of the year.” Samsung refused to issue a financial forecast for 2022, calling it “an immense challenge to predict the duration or market ripple effects of various macro issues.”

Second-quarter fears haven’t stopped several tech giants from authorizing stock buybacks or plowing ahead with expensive investments—a signal that any future fallout won’t sting too terribly. 

Wall Street also will price these impediments into estimates for second quarter performance and beyond, much as it did in the first quarter. Example A: Meta shares soared Thursday on a slight uptick in app usage, despite reporting its smallest increase in quarterly revenue growth since going public 10 years ago.

If this earnings season is any indication, though, the bar for Big Tech will be the lowest we’ve seen in a while.

Want to send thoughts or suggestions for Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

A rainy day in Seattle. Amazon reported its slowest rise in quarterly revenue since the early 2000s, causing its stock to plunge 13% in mid-day trading Friday. A slowdown in online sales growth, higher labor costs, and a $7.6 billion loss from its investment in struggling automaker Rivian marred the e-commerce giant’s first-quarter earnings report. Amazon’s second-quarter revenue estimate of $116 billion to $121 billion also fell short of analyst forecasts of $125.5 billion.

Holding back some chips. Intel topped analysts’ earnings and revenue estimates for the first three months of 2022, but an underwhelming second-quarter outlook sent shares in the semiconductor maker down 6% in mid-day trading Friday, CNBC reported. Quarterly revenue fell 7% year-over-year, partially due to lagging demand for personal computers outfitted with the company’s chips. The slowdown in PC sales is expected to continue into the second quarter, pushing Intel’s earnings and revenue forecasts below analyst estimates.

Elon cashes out. Tesla CEO Elon Musk unloaded about $8.4 billion worth of company stock this week as he prepares to buy Twitter for $44 billion, CNBC reported. Musk tweeted Thursday night that he doesn’t plan to sell any more Tesla stock, though it’s unclear whether all regulatory filings that detail Tesla stock sales this week have been released publicly. Tesla shares rose 2% despite a broader market selloff, potentially signaling relief among investors worried that Musk would offload more shares to finance his Twitter acquisition.

Back on better terms? The Chinese government is expected to relax its extended crackdown on its domestic tech industry, delivering a reprieve to an embattled sector struggling under the weight of tough regulations, The Wall Street Journal reported Friday. As part of the pullback, Chinese government officials might push to take a 1% stake in some of the nation’s largest tech companies, similar to its ownership of TikTok owner ByteDance and social media outfit Weibo. President Xi Jinping’s administration has saddled Chinese tech giants with burdensome regulations, investigations, and fines in the past two years, aiming to curb their fast-growing power.

FOOD FOR THOUGHT

More than a friend. Hey Alexa, are you using our conversations to micro-target me with ads? The answer, according to a new research paper, is “yes.” The Verge reported Thursday that several researchers have concluded that Amazon harvests data from interactions with its Echo smart speakers, then uses that information to inform advertising delivered to users across the company’s platforms. The data is also shared with at least 41 advertising partners, the researchers found. Amazon confirmed to The Verge that it collects Echo conversation data for marketing purposes, though it disputed parts of the researchers’ findings and denied sharing Alexa requests with advertisers.

From the article:

The 10 research scientists behind the report, led by Umar Iqbal, postdoctoral researcher at the University of Washington, created an auditing framework to measure online advertising data collection. They then created a number of personas to interact with Alexa using third-party skills; these personas had specific interests: spirituality, connected car, smart home, pets, fashion, dating, navigation, beverages, and health. They also created a “vanilla” persona as a control.

Statistical analysis of the results determined that each persona was served targeted ads elsewhere on the web, leading to the conclusion that smart speaker interactions are used for ad targeting on the web and in audio ads.

IN CASE YOU MISSED IT

Tesla recalls nearly 63,000 Model 3s, by Chris Morris

Panama is poised to approve the use of Bitcoin and 8 other cryptos ‘without limitation’, by Chloe Taylor

Edward Snowden says he’s the mystery man involved in the creation of leading privacy cryptocurrency Zcash, by Taylor Locke

How Elon Musk and Mark Zuckerberg are trying to reshape A.I.’s future, by Jonathan Vanian

Red ink, inflated user count, and a shelved outlook: Did Elon Musk bite off more than he can chew with Twitter?, by Christiaan Hetzner

Elon Musk’s Twitter buy might have pushed crypto ‘whales’ to buy huge amounts of Dogecoin, by Taylor Locke

BEFORE YOU GO

Betting on IRL. Count Evan Spiegel out on the metaverse. The Snap CEO shrugged off the buzzy platform as “ambiguous and hypothetical” Thursday as the company unveiled a low-cost drone used for taking pictures and discussed plans for new augmented reality glasses. The comments are a not-so-indirect swipe at social media rival and Meta CEO Mark Zuckerberg, who’s plowing tens of billions of dollars into building a virtual reality metaverse. Said Spiegel: “Our fundamental bet is that people actually love the real world. They want to be together in person with their friends.” We’ll see if Zuckerberg gets the last laugh in 2032.