Apple reports results for its fiscal second quarter on Tuesday night after the market close. Investors seem to be anticipating another big quarter for the world's most valuable company, whose stock hit a new all-time high on Monday. Here are seven things to look for in Apple's numbers:
March sales
A year after reporting its first decline in quarterly revenue for 13 years, Apple is returning to growth. On Tuesday it is expected to report a 5 per cent to 6 per cent rise in sales to some $53 billion (€48.5bn) for the quarter ending in March, as iPhone sales grow to about 52 million to 53 million units, compared with 51.2 million a year ago.
June sales
Some Wall Street analysts are more anxious about Apple’s performance in the quarter ending in June as customers start to hold off buying new iPhones in anticipation of a big upgrade in September. Apple’s outlook for June is expected to show revenues of $45 billion, which would constitute year-on-year growth of 6 per cent. That implies iPhone sales of 42 million units, up from 40.3 million in the same period a year ago.
Cash management
Apple revisits its capital allocation programme at this time every year, and with its total cash pile approaching $250 billion (€228.9bn), Tuesday is expected to see another increase in its dividends and share buyback scheme. Analysts at UBS expect the total size of Apple's capital return to increase from the $250 billion announced a year ago (which is authorised until the end of March 2018) to $310 billion (€283.9bn). That could include a 10 per cent increase in its dividend and an extra $40 billion (€36.6bn) in share repurchasing.
Investors will also be looking for hints at how Apple might spend even more of its cash if it is allowed to repatriate its offshore funds – which make up more than 90 per cent of its total – at a lower tax rate under the Trump administration.
Margins
Gross profit margins are among the most closely watched metrics by analysts looking to assess the overall health of Apple’s business. Apple told investors three months ago that its gross margin for the March quarter would be 38 per cent to 39 per cent. Analysts expect a similar range for the June quarter but there are several complicating factors, principally the continuing strength of the US dollar, which has caused Apple to raise prices in some parts of the world. Another challenge is rising component costs, such as the increased price of flash memory.
"We view company commentary around how much higher commodity costs will impact margins as the main guidance wild card," said analysts at Morgan Stanley in a recent note to clients. Morgan Stanley also noted that profitability can sometimes dip because of production costs of a new product launch as Apple ramps up for the new iPhone in September. On the other hand, Apple has begun to withhold certain royalty payments as part of its legal battle against chip supplier Qualcomm, which analysts at RBC suggest could provide a boost to its margin.
China
During the iPhone 6 cycle, the move to a larger screen triggered a surge of new Apple customers in China. However, that tailed off last year and the region has remained slow for Apple, even as consumers in America have scooped up the iPhone 7. Neil Cybart, an independent Apple analyst at Above Avalon, estimates that iPhone sales in China could fall by as much as 20 per cent in the March quarter – worse even than the previous three months despite the typical boost from January's Chinese New Year celebration.
If Apple is to return to the same kind of growth it saw in late 2014 and early 2015, it must lure more Chinese consumers away from local smartphone makers such as Oppo, Vivo and Xiaomi.
Apple Watch and AirPods
Apple is about to report the first full quarter of sales for its wireless earbuds AirPods. Anecdotal evidence suggests that the product has been a huge hit for Apple: analysts at Creative Strategies and Experian conducted a survey of 942 people that found a 98 per cent satisfaction rating – higher than similar surveys rated the iPhone, iPad or Apple Watch in the first year of availability. However, AirPod sales have been limited by supply shortages; customers ordering a pair today in the US can expect to wait several weeks for a delivery. If it wants to trumpet its success Apple might give a sales figure for its AirPods but it is more likely to keep them private, as it continues to do with Apple Watch sales.
Both products are lumped into the “Other products” category that also includes iPods, Beats headphones and other accessories. For Apple Watch, which typically has its strongest quarter in the run-up to the holidays, Mr Cybart expects unit sales to rise 25 per cent year-on-year to 1.9 million devices for the March quarter. That could end up being less than the (cheaper) AirPods, for which Mr Cybart predicts sales of about 2 million units.
Clues to future products
The main focus for analysts and investors for Apple’s future is the next iPhone, which promises to have a new kind of screen and a sophisticated “augmented reality” camera system. Supply is likely to be as important as demand in determining whether it really will create the sales “supercycle” that many are hoping for so expect analysts to probe for hints about Apple’s progress in securing OLED screens and other components that could limit its production at first.
Looking beyond the iPhone, a new Siri-powered “smart speaker” is looking increasingly likely to launch in June at Apple’s developer conference, while even further out augmented reality glasses and self-driving cars also form part of its long-range R&D. Now that the first Apple test vehicles are out in public and driving around Silicon Valley, investors might expect some indication of how long it will take for an iCar – or something like it – to emerge from its secret labs.
– (Copyright The Financial Times Limited 2017)
