Apple Inc. is scheduled to report its financial performance for the second fiscal quarter of 2024 on Thursday, April 27th, after the market closes. Market expectations are relatively subdued, anticipating limited growth due to tepid sales of the iPhone and challenging macroeconomic conditions. Nevertheless, Apple has often surpassed lowered expectations in the past, leaving room for a potential positive surprise.
Analysts, on average, project Apple to report earnings per share of $1.50, representing a marginal increase compared to the same period last year. Revenue is estimated to reach $90.01 billion, indicating modest growth. A closer look at Apple’s business segments reveals the following revenue projections:
– iPhone: $46.00 billion
– Mac: $6.86 billion
– iPad: $5.91 billion
– Wearables, Home, and Accessories: $8.08 billion
– Services: $23.27 billion
The performance of Apple’s various business units will be closely scrutinized by investors, particularly the iPhone division, which accounts for a significant portion of the company’s revenue. Analysts anticipate Apple to provide a forecast for the current quarter, with consensus estimates pointing to sales of approximately $83.23 billion, translating to a modest annual growth rate of 1.8%.
Despite the muted expectations, investors will be keenly attuned to Apple’s commentary regarding the demand for the recently released iPhone 15. Concerns have emerged about potential weakness in demand for the new smartphone, which could further dampen Apple’s sales outlook.
Of paramount importance will be Apple’s assessment of its performance in China, its third-largest market. In the December quarter, Apple experienced a 13% decline in sales in Greater China, a region that encompasses Hong Kong and Taiwan. Analysts polled by FactSet anticipate China regional sales to reach $15.25 billion in the March quarter, representing a 14% year-over-year decline.
The slump in China raises concerns about the deteriorating business environment in a crucial market for Apple, where the company also manufactures the majority of its products. Reports have surfaced of Chinese government agencies instructing staff to reduce the use of “foreign” devices, potentially signaling a shift in sentiment towards Apple. Furthermore, Apple faces intensified competition from domestic companies like Huawei, which recently launched a 5G smartphone despite U.S. export controls on advanced chips.
Toni Sacconaghi, an analyst at Bernstein, acknowledged the recent decline in Apple’s stock price, attributing it to concerns about the iPhone 15 cycle and the potential structural challenges in China. However, he remains optimistic about Apple’s long-term prospects, suggesting that the current headwinds are more cyclical than structural. Sacconaghi emphasized Apple’s historical volatility in the China market, noting that during strong iPhone cycles, revenue growth in China typically outpaces the company’s overall growth. Conversely, weaker iPhone cycles tend to be followed by several quarters of subdued growth or even negative year-over-year growth, as is currently being observed.
Third-party data on China’s smartphone market paints a mixed picture. Counterpoint Research reports that Huawei’s smartphone shipments surged by 70% year-over-year in March, while Apple’s shipments declined by 19%, resulting in Apple slipping to third place in the Chinese market. However, UBS analyst David Vogt suggests that a closer examination of the data reveals preliminary signs of improvement in iPhone demand, which may be broader than initially anticipated.
In contrast, official statistics indicate that iPhone sales in China fell by 33% in February, marking the second consecutive month of declining shipments. Wells Fargo analyst Aaron Rakers estimates that iPhone sales could decline by 20% year-over-year during the March quarter.
Overall, expectations for Apple’s second fiscal quarter earnings are muted. However, investors will be closely monitoring the company’s guidance for the current quarter, which may provide valuable insights into Apple’s assessment of the market conditions and its future prospects.
Erik Woodring, an analyst at Morgan Stanley, believes that Apple could experience a positive reaction if its earnings report and guidance exceed lowered expectations. However, he also acknowledges the potential risks involved and advises investors to approach the situation with caution.
Since 2020, Apple has refrained from providing formal guidance. However, company executives often offer data points that analysts can use to formulate their own sales projections. Woodring highlights the importance of Apple’s revenue and gross margin guidance for the June quarter, which will be closely scrutinized by investors.
Additionally, Apple typically provides updates on its share buyback plans during its second-quarter earnings call. Woodring anticipates that Apple will announce updates to its capital return plans at the March quarter earnings call, and he does not expect any significant deviations from recent plans. In May 2023, Apple authorized an additional $90 billion in share repurchases, underscoring the company’s commitment to returning cash to shareholders.
