Apple Inc. AAPL 0.93% is scheduled to report results for its fiscal third quarter after the market closes Tuesday. Here’s what you need to know.
EARNINGS FORECAST: Analysts on average expect profit of $2.09 a share, according to a survey by FactSet. Apple hasn’t provided profit guidance for the quarter but in April said it expected gross margin of approximately 37% to 38%.
REVENUE FORECAST: Analysts expect $53.32 billion, according to FactSet, compared with $53.27 billion a year earlier. In April, Apple said it expected revenue of between $52.5 billion and $54.5 billion for the quarter.
WHAT TO WATCH:
Gimme Shelter: The iPhone business has become the anvil tied to Apple’s ankle. Analysts predict Apple’s iPhone sales fell 11% to $26.31 billion in the June quarter from a year ago. The third quarterly decline in iPhone revenue is expected to mar growth in every other area of Apple’s business. “As the iPhone business goes, so goes Apple,” said Mark Vena, a technology analyst with Moor Insights & Strategy.
To counter the slowdown, Apple earlier this year introduced trade-in programs and began offering financing for new iPhones. The efforts helped, analysts say, reducing the decline in iPhone sales to 11% from a 16% drop in the first half of the fiscal year. Analysts also say people with older iPhones have been upgrading to the lower-priced XR model in recent months.
It’s Going to Be a Long, Long Time: Apple’s September-quarter guidance often provides the first prediction of sales for new iPhones due out that month. But analysts are pessimistic the next batch of iPhones will lift the company’s fortunes. Apple’s plan for three iPhones—one with a triple-rear camera and two with double-rear cameras—lacks the sizzling features that compel customers to upgrade, especially at prices of $1,000 or more. Apple isn’t expected to deliver features that drive upgrades until 2020 when analysts expect it to it to release its first iPhones with 5G chips.
Chief Executive Tim Cook usually avoids discussing future product plans, but he may give investors insight into how Apple views 5G by discussing its recent agreement to buy Intel Corp. ’s 5G modem business. The purchase paves the way for Apple to develop its own smartphone chips that boost iPhone battery life and reduce real estate inside the iPhone.
One Way or Another: Apple has revved up efforts to sell more software and services as it looks to offset slowing iPhone sales. Analysts predict its services revenue rose 15% to $11.68 billion. Though that’s slower growth than previous quarters, Mr. Cook is expected to emphasize it during his call with analysts.
Apple is building anticipation for new services planned this year, including a credit card, TV subscription offering and videogame service. Analysts remain mixed about growth prospects. The largest contributor to services—the App Store—faces regulatory pressure in Europe where Spotify Technology SA filed a complaint alleging Apple has made it difficult for rival subscription services to market themselves in the App Store, something the company denies.
Ain’t No Sunshine: China remains mired in an economic funk, recently posting its slowest quarterly growth in decades. Trade tensions with the U.S. have deepened those challenges.
The Trump administration moved in May to block sales of American high-tech equipment to Huawei Technologies Co. The action made Apple investors fear Chinese consumers might retaliate and choose Huawei phones over iPhones. Though Chinese customers haven’t done so en masse, Apple’s share of China’s smartphone market has dwindled.
Apple needs China to return to growth if its iPhone business is going to rebound. It also needs Chinese customers to continue buying iPhones because App Store purchases there account for a sizable piece of its services business.
Should I Stay or Should I Go: The U.S.-China showdown continues to threaten Apple’s business. The company assembles most iPhones in China, making those and other devices vulnerable if the Trump administration follows through on threats to impose duties on $300 billion in imports from China.
Apple is considering moving some of its assembly work out of China to avoid U.S. tariffs. Analysts may ask about the costs of shifting assembly to Vietnam, India or other markets. Such a move could reduce Apple’s margins at a time when it is battling a decline in revenue.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
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https://www.wsj.com/articles/apple-aims-to-offset-iphone-weakness-with-strengthening-services-11564479006
2019-07-30 09:30:00Z
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