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Home / Technology / Trade War and iPhone Sales: What to Look for in Apple Revenue

Trade War and iPhone Sales: What to Look for in Apple Revenue

Apple has a chance to give investors another reason to keep Apple's bullish streak when it reports earnings after closing markets on Tuesday. Apple shares have risen 15% in the last three months, boosted by a massive capital return program announced in April.

In its fiscal third quarter earnings, covering the three months ending in June, Apple will unveil the iPhones it launched in September in September, enjoying sustained demand or whether the more expensive $ 1000 iPhone X fizzled in the slow season after last year's very important holiday quarter. Generally, Apple's spring quarter is the slowest in terms of sales and iPhone sales.

"Our controls indicate that demand for iPhone 8 and 8 Plus stays seasonal while iPhone X inventory has normalized and older models continue to work well in emerging markets," wrote Citi analyst Jim Suva earlier this month.

Wall Street is looking for Apple to report revenue of $ 52.3 billion, an increase of 1

5% year-on-year and a $ 2.16 earnings per share.

But investors will also keep track of comments and details buried in the report that may indicate where Apple is going, especially in the fall when it is expected to launch new iPhones.

This is what Wall Street is looking for:

iPhone sales

Given that iPhone is the majority of Apple's revenue, investors only want to know how many iPhones were sent and the average price they were sold for.

Even a slight difference in that number can change Apple's earnings from a good day to a bad day for the stock.

Morgan Stanley Katy Huberty, for example, expects Apple to say that it sent 39.8 million iPhones in June quarter, under the consensus estimate of about 41.8 million iPhones sent.

Ng Han Guan / AP


Investors are increasingly looking at Apple services – the money that sells subscriptions to people who own iPhones – as the most important driver for what makes Apple a more valuable company than it already is.

"Given the iPhone results mean less late in a cycle … We expect investors to increasingly focus on Services performance as an indication of whether Apple's installed base revenue effort could drive total company growth despite reduced device revenue," Huberty wrote in a July 23 note.

Apple defines services like iCloud, Apple Music, App Store, iTunes and AppleCare, and sometimes Apple comments on growth, especially during slower quarters.

"Services are an increasingly important part of the AAPL story and a great driving force for gross margins," says RBC analyst Amit Daryanani in a recent note. "The segment currently stands for ~ 15% of revenue and is on track to become a $ 50B business by 2020."

Huberty is looking for services to grow 32% year-over-year, which would be a big jump.



The Chinese market remains the area where Apple could see the greatest growth, given its growing middle class.

But Apple faces strong competition from home users of Android phones, as well as regulatory issues in the Middle Kingdom. So far, Cook and his CEO in China, Isabel Ge Mahe, have managed to navigate in the difficult regulatory landscape.

"China's production data (with 29% in F3Q) means Apple's sales growth in Greater China will fall from 21% in F2Q," writes Nomura's Jeffery Kvaal.

The Upcoming Cycle

Often, Apple's fiscal fourth quarter guidance will contain a small revenue from Apple's latest phones, which will usually be announced in September and will be on sale shortly thereafter.

One week's sales, however, are not usually enough to know if the new product cycle is going to be a hit or not. It has not stopped analysts from speculating that if Apple's guidance is strong, it may be a hint that the company expects a major iPhone launch.

"While all eyes will be on Apple's Will FQ4 guidance, we note that historically speaking, revenue guidance for FY Q4 has not * been a useful prerequisite for the strength of the upcoming cycle," wrote Bernstein analyst Toni Sacconaghi.

Apple's Passion Projects

Apple is working on several new technologies that could unlock major new markets: self-propelled cars, magnified reality and health and medicine.

All these "special projects" and "technological investigations" are secret. However, sometimes, Apple officials give an earnings call comments that indicate that they see them as big projects and can lead expectations of increased earnings in the future.

"In our opinion, revenue can be significant even without Apple introducing a dedicated AR hardware," explains Wamsi Mohan, analyst from Bank of America Merrill Lynch in a note. "In particular, we estimate that AR can post $ 1 billion revenue at the end of fiscal 2020 from App Store downloads alone."

Apple's data security policy appears on the bottom line

Apple has made data security an important marketing and engineering priority for the company and it began to pay off earlier this year when Facebook was burned to allow companies such as Cambridge Analytica to access people's data.

Managing Director Tim Cook even took some barely blurred photos on Facebook.

So some analysts, like D.A. Davidston analyst Tom Forte looks for "comments from management about the importance of privacy and its efforts to cope with it in the updated versions of operating systems."

Commercial War


Reuters reported earlier this month that Apple's Apple Watch may be affected by tariffs proposed by the Trump Administration.

This may lead to an increase in the price of Watch or a reduction in Apple's margins.

Analysts will look to see if Apple's leadership gives some comments on how the crumbling trade war can affect some Apple products.

"If there were any incremental tariffs called, we think Apple would pass that price to consumers, and our view is that some price increases are not positive for demand," wrote Citi's Suva.

"We also note that iPhone is not in the tariff chart for July 2018 for 818 items," he continued.

How Siri fits into the company

Earlier this month, Apple announced that it had consolidated its Siri department under one head: John Giannandrea, whom the iPhone giant hired from Google earlier this year.

This may signal a greater emphasis on Siri and artificial intelligence in general at the company.

Comment from Cook or CFO Luca Maestri was able to clarify the reasoning and hopes for personnel change.

"While we still see Apple catching up with Amazon's Alexa and Google's digital assistant, we are encouraging John Giannandrea (Google's former search for search and AI) in April 2018 to support Siri" Forte, Davidson analyst, wrote.

Any signs people hang on their iPhones longer

A bear case for Apple is that people replace their iPhones less often as technology becomes more mature. The closer the compensation rates the edge to three years instead of two years, the stronger the case.

"The iPhone replacement rates have normalized in recent years in a 2.5-year range after being as low as 2.2 years in the iPhone 6 cycle," said Timo's analyst, BMO Capital Mark. "We believe it may be further extension if the new product cycle is not convincing. "

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