Drop in iPhone sales expected

Report may show second straight quarter tech giant recorded year-over-year decline

CUPERTINO — When Apple delivers its next business update Tuesday, there’s a sense that just hanging in there might be enough to call the last three months a success.

That’s saying something, especially when talking about the world’s most valuable company in terms of market capitalization — and which reported $50.6 billion in sales during the first three months of the year.

“Expectations are low for iPhone (sales) and the overall business,” Piper Jaffray analyst Gene Munster said in a research note on his expectations from Apple. “If Apple reports an in-line quarter, and guides (sales) down slightly, we believe the stock would likely drift

higher, although not move significantly.”

For its fiscal third quarter, which ended in June, analysts surveyed by Thomson Reuters estimate Apple will earn $1.39 a share on $42.1 billion in sales.

The tech giant has said it expects revenue to be between $41 billion and $43 billion. During the same period a year ago, Apple earned $1.85 a share on $49.6 billion in sales.

Apple shares on Monday fell 1.3 percent to $93.74. Since Apple reported its second quarter results in April, the company’s stock price has fallen by 7 percent.

Unless Apple surprises everyone, Tuesday’s report will mark the second straight quarter in which Apple will have recorded a year-over-year sales decline.

In April, Apple reported a fiscal second quarter profit of $1.90 a share on revenue of $50.6 billion.

It was the first time in 13 years that Apple saw quarterly sales fall on an annual basis. Apple’s fiscal year starts in September.

With Apple coming off a quarter that also saw iPhone sales decline for the first time since 2007, many industry watchers are already looking ahead to the second half of the year.

Apple is expected to hold a company event in September, as it historically does every year, to unveil a new model of the iPhone, and many have already dubbed the next version of the smartphone the iPhone 7.

Apple likes to get a new iPhone on the market early in the last quarter of a year so it can capitalize on the huge sales that come with the holiday shopping season.

Regardless of how well Apple’s other products do — whether they be the iPad, the Mac or the Apple Watch — the iPhone remains the most visible gauge of Apple’s business health.

During Apple’s second quarter, iPhone sales, even though they were down, still accounted for $32.9 billion, or 65 percent of the company’s total revenue.

Because of the iPhone appearing to reach worldwide saturation levels, Munster called the iPhone and its next device iterations “a wild card.”

“We believe expectations from consumers and investors are low for the iPhone 7,” Munster said. “For iPhone 7S or 8, we believe the company could provide a more drastic redesign with a wraparound screen, sort of an evolution from the (Samsung) Galaxy Edge. We believe that such a design change could be enough to excite users to upgrade.”

UBS analyst Steven Milunovich said such less-than-stellar enthusiasm for the iPhone is not just anecdotal.

Milunovich cited a June survey of 4,168 North American consumers by 451 Research as evidence that interest in buying an iPhone is at its lowest level since 2008.

According to the survey, only 8 percent of respondents said they were “very likely” to buy the iPhone 7 when it comes out, compared with 16 percent who gave the same response when surveyed about the iPhone 6 in 2014.

“For iPhone 7S or 8, we believe the company could provide a more drastic redesign with a wraparound screen, sort of an evolution from the (Samsung) Galaxy Edge. We believe that such a design change could be enough to excite users to upgrade.”

— Gene Munster, Piper Jaffray analyst