apple reported second-quarter earnings on Thursday after markets closed.
Investor expectations are low, and Apple could beat them even if sales growth is weak. In February, Apple said it expected sales similar to last year’s $94.84 billion in the same period and flat iPhone sales.
Here’s what analysts expect from Apple, according to LSEG consensus estimates:
- earnings per share: $1.50
- Income: $90.01 billion
Here’s how Apple’s business units are expected to fare in the March quarter, according to LSEG estimates:
- iPhone revenue: $46.00 billion
- Mac revenue: $6.86 billion
- iPad revenue: $5.91 billion
- Revenue from wearables, home and accessories: $8.08 billion
- Service income: $23.27 billion
Analysts expect Apple to give a forecast for the current quarter of about $83.23 billion in sales, which would be a 1.8% year-over-year increase. Apple shares are down about 10% this year, underperforming their peers and the broader market. Some worry that the 2023 iPhone 15 may be in low demand.
But the biggest issue investors will be paying attention to is the overall trend in Apple’s third-largest market: China. In the December quarter, sales fell 13 percent in greater China, which includes Hong Kong and Taiwan. Analysts polled by FactSet expected $15.25 billion in regional sales in China, which would be a 14% year-over-year decline.
Even worse is what the recession could indicate: Worsening conditions in a key market for Apple where it also makes the vast majority of its products. Chinese government agencies in the past year According to reports asked staff to limit the use of “foreign” devices – iPhones – suggesting that Apple may not have the support of the Chinese national leadership.
Apple also faces increased competition from local companies, including Huawei, which recently unveiled a 5G smartphone despite US export controls on advanced chips.
“AAPL has been significantly downgraded amid a weak iPhone 15 cycle and fears that Apple’s China business has been structurally degraded,” Bernstein analyst Toni Sacconaghi wrote in a note last week. It has an outperform rating on the stock.
However, Sacconaghi doesn’t see Apple being permanently hampered by Chinese Communist Party sentiment, calling the current weak cycle “more cyclical than structural” and pointing to Apple’s historical volatility in the region.
“In strong iPhone cycles, Apple’s revenue in China typically grows much faster than Apple overall as Chinese consumers embrace the new phone,” Sacconaghi wrote. “The strong embrace is usually followed by several quarters of weaker (and often negative annualized) growth, as we are seeing now.”
Third-party data points for China are also not robust.
Data from Counterpoint Research shows that Huawei rose 70% year-on-year in March, while Apple fell 19%, falling to third place. However, analysis of the data suggests that “preliminary signs of improvement in iPhone demand … are broader than previously expected,” David Vogt of UBS wrote this week.
Meanwhile, government statistics show iPhone sales down 33% in Februarythe second consecutive month of declining shipments.
Wells Fargo analyst Aaron Rakers said in a March note that iPhone sales could fall 20% year over year during the quarter.
Expectations for the quarter have been lowered, and how Apple says it sees the current quarter shaping up may be more important than its March quarter results.
“There is a chance Apple could see a relief rally/push higher on a ‘better than feared’ report/earnings guide,” Morgan Stanley analyst Erik Woodring, who has an overweight rating on the stock, wrote in a note April. “That makes for a difficult setup and we don’t think investors should necessarily get ahead of themselves.”
Apple hasn’t provided guidance since 2020, but company executives are providing data points that analysts can use to project sales. “June quarter revenue and gross margin guidance will be critical this quarter,” Woodring wrote.
Apple also typically tells investors during second-quarter earnings about how much it plans to spend on share buybacks for the rest of the year.
“We expect Apple to update its plans for a capital return in the March quarter earnings and do not expect any material deviation from recent plans,” Woodring wrote. In May 2023, Apple said it had approved an additional $90 billion in buybacks.