Apple Set to Report Record Revenue as Investors Watch for Sluggish Demand

Apple Inc.

AAPL -3.05%

is expected to report record iPhone revenue and sales for the September quarter even as investors watch closely for signs that declining consumer demand for hardware products is affecting the company technology.

The Cupertino, Calif., company is set to announce its full-year earnings on Thursday after the markets close. To date, Apple’s business has largely remained strong in the face of a broader decline in smartphone sales and global economic challenges.

CEO Tim Cook said in July that the company had yet to see evidence in its internal data that macroeconomic headwinds were having an impact on its iPhone sales.

But Apple’s fellow tech giants are seeing significant declines. Earlier this week, Microsoft Corp.

Alphabet Inc.’s

Google and Facebook parent Meta Platforms Inc.

all reported disappointing earnings, citing factors such as declining consumer demand for PCs or weakness in digital advertising.

“We worry about that [Apple] could have been a beneficiary of Covid,” Toni Sacconaghi, senior analyst at Bernstein Research, wrote in a note to investors, adding that Apple’s fortunes could reverse, “particularly as spending priorities consumer preferences change and rising rates potentially put pressure on demand.”

For the quarter that ended in September, Apple’s overall revenue is expected to be $88.8 billion, according to FactSet. This is higher than 6.5% from the same quarter last year. Sales from the iPhone, which accounts for about half of the company’s global revenue, are expected to be $43 billion, an increase of 10.7% from the previous year.

On net income, analysts on average are expecting $20.4 billion, down a percentage point from the same quarter last year.

Last month, Apple announced its latest line of smartphones with the iPhone 14, which includes two base models at a lower price as well as two premium versions of the phone with the Pro designation. Analysts expect a weakening of the base models as consumers gravitate towards the Pro models, which come equipped with a much better camera and chips.

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The latest iPhone Pro models are expected to account for 60% of global iPhone 14 sales, according to JP Morgan analyst Samik Chatterjee. Previously, it was split more evenly between the base and Pro models in the iPhone 12 and 13 generations, he said.

Strong Pro sales are expected to offset the potential weakness in overall iPhone sales by boosting Apple’s average selling price for the iPhone. Since the introduction of a Pro model line in the iPhone 11 generation of 2019, iPhone buyers have gradually been conditioned to the higher end with Apple. Also with the arrival of 5G in late 2020, American consumers were willing to pay the premium.

Average iPhone selling prices rose to $954 in the company’s June quarter, from $783 in the September quarter of 2019, according to Consumer Intelligence Research Partners.

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Investors are concerned by the slowdown in sales growth in services, an important area for Apple’s business diversification as the iPhone becomes a more mature product. In its June quarter, sales advanced 12% from a year earlier to $19.6 billion, slightly below analysts’ expectations. The services, which include revenue from its iPhone App Store, are considered by some analysts to be an early indication of consumer demand before they show up in iPhone sales.

Earlier this week, Apple raised the price of its Apple Music and Apple TV+ streaming services, which could boost the services’ revenue.

Analysts are also concerned about the health of Apple’s business in China, as the country continues to undergo further Covid-related lockdown measures. Greater China sales are expected to increase more than 3% to $15.1 billion.

Write to Aaron Tilley at [email protected]

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