Apple Inc. is scheduled to report its fourth-quarter earnings for its fiscal year today (Tuesday Oct. 25) after the market close. Wall Street and investors excited to learn about the iPhone sales, which declined in the last two straight quarters. Apple introduced the iPhone 7 and iPhone 7 Plus last month, and their demand appears to have been strong, mainly because of Samsung’s Galaxy Note 7 recall. iPhone sales account for about 60% of the company’s total revenue.
No Big iPhone 7 Impact On Q4 Earnings
According to a report in Forbes, the iPhone 7 is unlikely to significantly impact Apple’s fourth-quarter earnings. The iPhone 7 hit the stores during the fourth quarter and it was available for just about two weeks during the quarter. So, it won’t have a big impact on the company’s earnings.
The report notes that the fourth-quarter iPhone numbers “will still largely be driven by the 6S, which should have seen some discounting in order to drive volumes and reduce inventory prior to the launch of the new flagships.”
Moreover, the lower-specification iPhone SE is expected to be a big driver of sales for the quarter. “Overall, we expect iPhone shipments and ASPs to decline on a year-over-year basis, putting pressure on Apple’s gross margins (guided at 37.5% to 38% for the quarter),” the Forbes article reads.
Apple Inc. is expected to report declines in its fiscal fourth quarter earnings for the third straight quarter. The tech giant is predicted to report $1.65 a share, a 16% decrease, on revenues of $46.9 billion, down 9%, according to analysts polled by Thomson Reuters.
Morgan Stanley expects that the iPhone maker will report about 44 million iPhones shipments in the fourth quarter, versus 48 million a year ago, Quartz reported. The firm’s analysts predict a “supercycle” starting at the end of 2017, when the company is expected to completely overhaul its iPhone, Mac, and iPad lines. The publication reported that the company’s services business has been a bright spot in its earnings. Its services business includes sales of music and apps, iCloud and Apple Music subscriptions, and AppleCare.
“Services now make up the company’s second-largest business segment, and at a time when the company is struggling to sell iPhones at the rates it has in the past, getting more revenue out of people who already own Apple devices could be a way to help prop things up until the impending supercycle,” Quartz reported.
Apple in China
The majority of future growth for Apple’s depends on its strong foothold in China, the world’s second-largest economy and company’s second largest market. The company’s revenues in Greater China fell 33% year-on-year in its fiscal third quarter.
Apple’s performance in China will be a key factor to watch today. A recent report from UBS analyst Steven Milunovich indicates that demand for the iPhone 7 is ‘tepid’ in China. The iPhone maker has been losing market share to domestic Chinese brands including Huawei, OPPO, and Vivo. Its premium handsets are having a hard time proving their worth against the country’s local products. The Greater China market represents about 25% of the company’s revenue.
During the third quarter, revenues from the region declined by about 33% year over year to roughly $8.8 billion. In addition to stronger competition from Chinese smartphone rivals, the company has been dealing with FX headwinds (RMB down by about 5% versus USD over the last year) as well as some regulatory setbacks.
Given strong promotional activity from Chinese carriers for the Apple Watch Series 2 and the iPhone 7, Apple’s performance is expected to slightly improve in the region this year. The tech giant is boosting its investments in China as it looks to reverse falling sales and regulatory hurdles in the country. During his recent visit to China, Cook had spoken with senior government officials and pledged to expand the firm’s presence across the world’s second-largest economy.
This will be a busy week for Apple Inc. , which is set to launch new laptops at the media event on October 27. The company is expected to unveil a new 13-inch MacBook, a new 13-inch MacBook Pro, and a new 15-inch MacBook Pro. Additionally, the event is likely to include a new iMac desktop, MacBook Air, as well as a new standalone 5K monitor.