Are 75 mln iPhone sales enough for Ap­ple?

Financial Mirror (Cyprus) - - FRONT PAGE -

As Ap­ple Inc. (NAS­DAQ: AAPL) earn­ings ap­proach, noth­ing matches the im­por­tance of iPhone sales, par­tic­u­larly in China. The con­sen­sus among an­a­lysts is that Ap­ple sold 75 mln iPhones in the quar­ter. Any­thing short of that will be dis­as­trous for its share price, which has been un­der pres­sure for months.

Sales in the fourth quar­ter de­pended heav­ily on hol­i­day sales, sales in China and con­sumer ap­petites for an ag­ing iPhone fam­ily. While ag­ing de­pends on an odd def­i­ni­tion for Ap­ple, a few quar­ters of sales of a new gen­er­a­tion of the smart­phone move some cus­tomers to the point where they ei­ther have iPhones al­ready or a de­sire to wait for the iPhone 7, which prob­a­bly will be re­leased in the se­cond half of this year. Ap­ple’s new ad cam­paign has a tag line for its new­est smart­phone, the iPhone 6s, that reads, “The only thing that’s changed is ev­ery­thing.” Ap­ple did not make that claim when the iPhone 6s was new. So, the com­pany is push­ing fea­tures that are many months old.

Hang­ing over both iPhone and iPad sales is the spectre of the suc­cess of Al­pha­bet Inc.’s Google An­droid OS, which is used in al­most all non-Ap­ple tablets and smart­phones sold in the world — leav­ing aside progress made by Mi­crosoft and its new mo­bile ver­sions of Win­dows. Sam­sung, once Ap­ple’s wor­thy com­peti­tor, counts on new An­droid phones to get share back from Ap­ple. The ef­fort just might work.

In Ap­ple’s most re­cently re­ported quar­ter, its rev­enue from Greater China was $12.5 bln, up 99% from the same quar­ter the year be­fore. That was against Ap­ple’s global sales of $51.5 bln. Tim Cook, Ap­ple’s CEO, has made the point that China sales must rapidly be­come a much larger por­tion of his com­pany’s rev­enues or over­all growth will stum­ble.

Ap­ple has al­ways faced the chal­lenge of con­sumers who want the new­est iPhone and may wait un­til it is shipped. How many peo­ple will hold their “old” iPhone 6 mod­els and wait for the iPhone 7? No one knows, but it is a threat to sales.

Ap­ple’s stock has slightly re­cov­ered from a bru­tal sell-off that has driven its shares down 30% in the past six months. Over the past five days, the stock is down 3%.

The con­sen­sus es­ti­mates from Thom­son Reuters Ap­ple’s fis­cal first-quar­ter fi­nan­cial re­sults call for $3.23 in earn­ings per share (EPS) on rev­enue of $76.59 bln. In the same pe­riod of the pre­vi­ous year, Ap­ple posted EPS of $3.06 and $74.60 bln in rev­enue.

This re­mains the world’s big­gest and bold­est tech­nol­ogy com­pany. Ap­ple rev­o­lu­tionised per­sonal tech­nol­ogy with the in­tro­duc­tion of the Mac­in­tosh in 1984. To­day, Ap­ple leads the world in in­no­va­tion with iPhone, iPad, Mac, Ap­ple Watch and Ap­ple TV. Ap­ple’s four soft­ware plat­forms — iOS, OS X, watchOS and tvOS — pro­vide seam­less ex­pe­ri­ences across all Ap­ple devices and em­power peo­ple with break­through ser­vices, in­clud­ing the App Store, Ap­ple Mu­sic, Ap­ple Pay and iCloud.

The com­pany re­cently an­nounced that cus­tomers around the world made the 2015 hol­i­day sea­son the big­gest ever for the Ap­ple App Store, set­ting new records dur­ing the weeks of Christ­mas and New Year’s. In the two weeks end­ing Jan­uary 3, cus­tomers spent over $1.1 bln on apps and in-app pur­chases, set­ting back-to-back weekly records for traf­fic and pur­chases. Jan­uary 1, 2016, marked the big­gest day in App Store his­tory, with cus­tomers spend­ing over $144 mln. It broke the pre­vi­ous sin­gle-day record set just a week ear­lier on Christ­mas Day.

How­ever, there are in­creas­ing con­cerns that Ap­ple will post its first an­nual de­cline of iPhone ship­ments, as we draw closer the earn­ings re­port af­ter the close. This would be the first time that iPhone ship­ments de­clined since its in­cep­tion in 2007, and af­ter mul­ti­ple Ap­ple sup­pli­ers have warned of shrink­ing de­mand. Al­though, no sup­plier has pointed to Ap­ple as the cause of slow­ing de­mand. So far in 2016, Ap­ple has out­per­formed the mar­kets, with the stock down only 5.5% year to date. While over the past 52 weeks, the stock is down 10.5%.

Shares of Ap­ple were trad­ing up 0.5% at $100.00 on Tues­day, with a con­sen­sus an­a­lyst price tar­get of $247.67 and a 52-week trad­ing range of $92.00 to $134.54.

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