Apple investors seek clues on whether iPhone growth story has come to an end
Steady results predicted as Q3 earnings, Q4 outlook goes under microscope
When Apple Inc. reports results on Tuesday, investors will seek insight into upcoming new iPhones and how the current flagship iPhone X is performing. They also want executives’ latest thoughts on the growing trade dispute between the U.S. and China.
The Cupertino, Calif.-based technology giant is expected to announce fiscal third-quarter revenue of US$52.3 billion, according to analyst estimates compiled by Bloomberg. That’s in line with the company ’s recent forecast and translates to year-over-year revenue growth of about 15 per cent, the strongest for Apple’s June quarter since 2015. Higher iPhone average selling prices, increased services revenue, and unit sales growth for the Apple Watch should drive the expansion, analysts say.
Apple sold about 41.8 million iPhones in the third quarter, up almost two per cent from a year earlier, according to Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. Because of the US$1,000 iPhone X starting price, analysts on average are expecting iPhone revenue to grow about 17 per cent year-overyear, Sacconaghi said in a recent note. He’s looking for an average iPhone price of US$690, up from US$606 in the year-ago quarter.
Steady sales growth like this suggests consumers are still buying iPhones despite expectations that Apple, for the sixth year in a row, will revamp its smartphone lineup in or around September.
Investors and analysts will also be closely watching Apple’s fiscal fourth-quarter outlook. This is the period when new iPhones are often unveiled. Analysts see September quarter revenue of about US$59.5 billion, which would represent 15 per cent year-over-year growth.
Apple’s fourth-quarter forecast will give clues to when the new iPhones will debut, according to Shannon Cross of Cross Research. Last year, the iPhone X was unveiled in November, later than usual.
“We’re looking for three per cent growth this quarter, one per cent growth next quarter, and flat growth next year, leading analysts to model for the iPhone growth story coming to a close,” said Gene Munster, a veteran Apple analyst and co-founder of Loup Ventures. He sees annual iPhone unit growth of zero to five per cent for the next several years.
Apple’s Services division is expected to pick up the growth baton from iPhones. The company wants Services to be a US$50 billion business in coming years, and analysts are expecting revenue from this business to top US$9 billion in the fiscal third quarter, according to Bernstein research.
Apple Music streaming subscriptions and App Store sales should power services growth in 2019. Beyond that, the company’s impending online video offering may bolster the division’s expansion, Munster said.
While Apple is expected to report solid revenue growth, the Trump administration’s simmering trade war with China looms over the company. Products like the iPhone and iPad are designed in the U.S., but they are assembled in China-based factories run by the likes of Hon Hai Precision Industry Co. and Pegatron Corp.
So far, Apple has not publicly been affected by tariffs, and chief executive Tim Cook has expressed optimism about Apple’s fortunes. Still, the executive told U.S. President Donald Trump earlier this year that tariffs “were not the right approach.” Analysts will likely ask the CEO about this on Tuesday.
“Apple is going to have to address trade during the earnings call, especially given their extensive involvement in the Chinese supply chain,” Cross said. “My guess is that they will emphasize the investments they ’re making i the U.S. as that could be their bes angle here.”
Analysts differ on iPad perfor mance in the fiscal third quarter Cross Research is predicting iPa unit sales of 12.1 million, whil Bernstein sees 10 million. Appl rebooted its iPad strategy recentl to focus on high-end Pro model and cheaper versions geared to ward the education market.
The company plans new iPa Pros with iPhone X features thi year. That could boost iPad sale in the fiscal fourth quarter an the upcoming holiday quarter depending on when in 2018 th devices are upgraded. Bernstein i predicting an iPad average sellin price of US$440 in the fiscal fourt quarter, suggesting the cheape models will be more popular. IPa Pro prices range from US$649 t $1,279, while the low-cost mode ranges from US$329 to US$559.
Apple’s Other Products segment one of the company ’s fastest grow ing, includes the Apple Watch, Air Pods, HomePod, Apple TV, and ac cessories like the iPad’s detachabl keyboard. Bernstein expects rev enue from the category to jump 4 per cent year-over-year to US$3. billion in the fiscal third quarter The company is planning its firs full Apple Watch redesign and new AirPods later this year, Bloomber News has reported.