1. Nearly nine years after it shook the communications and computing worlds, the iPhone is facing the prospect of first quarterly unit sales decline
Wall Street expects Apple to report sales of about 50 million iPhones for the first three months of this year. That compares with 61.2 million the year before, and would represent the first year-on-year decline in the device's history.
Even though expectations for the iPhone 7 launch later this year are muted, investors are at least hoping that this quarter will represent a low point for the iPhone in the current cycle, with 2017 potentially bringing a new surge in demand on the back of the update.
Reflecting the wider mood, Barclays cut its forecasts to predict a 1.8 per cent decline in iPhone sales during the 2016 calendar year, due to concern that the iPhone 7 will not provide "any must-have form factor changes" to stimulate demand. Instead, Barclays believes that the next big "mega cycle" of iPhone upgrades will happen next year.
2. Revenues are set to slip for the first time since Apple launched the iTunes music store
The combination of a tough comparison and the broader smartphone market slowdown are expected to leave Apple with its first quarterly revenue decline in 13 years. At the $52 billion that most analysts anticipate, revenues will be some 10 per cent below the level of a year ago. And at $2 a share, earnings are expected to have fallen by 14 per cent.
3. Apple is renowned for issuing conservative guidance. This quarter is unlikely to be an exception
For the June quarter, investors will be looking for the company to predict revenues in the $45 billion-$47 billion range, as iPhone sales drop again, though at a more moderate rate. Gross margins are expected to be around 39 per cent, slightly weaker than the three months to March.
Of particular interest on the company’s analyst call following earnings: any commentary about demand for the lower-priced iPhone SE, which was launched at the end of March. Apple’s management is also likely to be quizzed closely on its performance in China, following the stock market gyrations in a country the company says will become its biggest market.
4. There are few other bright spots to make up for the decline in the iPhone
iPad unit sales in the most recent quarter may have slipped to 8 million, according to some estimates, down from 12.6 million the year before, and another big fall-off in demand.
After management tried to shift Wall Street’s attention to the company’s recurring services income on the last earnings call, this revenue line is likely to get particular attention.
Analysts at Piper Jaffray are confident that Apple’s new narrative around the services business – which accounts for 9 per cent of sales, is highly profitable and offers more stable growth than handset – will eventually win over investors.
But for Barclays, “it’s all about the iPhone”. “If iPhone slows for more than two to three quarters, we do not expect services or any other segment to provide ample offset,” Barclays said in a note last week.
5. Another generous helping of cash should help to assuage concerns
Apple has promised to return a cumulative $200 billion to shareholders. It is expected to add substantially to that this quarter. But the cash returns have not prevented a built up in its net cash and investment position, which hit $153 billion at the end of last quarter, up from $141 billion the year before.
Copyright The Financial Times Limited 2016
