Struggling iPhone sales & muted Services predicted for Apple's earnings

Posted:
in iPhone
Analysts at Cowen have cast doubt on the possibility a return to form for iPhone shipments will take place in this quarter, as well as for the foreseeable future, and while Services will provide a reliable high point in Apple's upcoming financial results, it may not be as much of a highlight as investors may think.




The March quarter results will most probably be in line with Apple's previously issued guidelines, a Cowen investor note seen by AppleInsider advises. The guidance for the following quarter is predicted to be "in line with the Street view" and point towards a 10% quarter-on-quarter revenue decline, though Cowen advises this would be modestly better than the three-year average of a 14% decline.

Cowen anticipates revenue of $57.9 billion and and EPS of $2.38 for the March quarter, while the June quarter is tipped to produce $52.1 billion in revenue and an EPS of $2.03.

The stock price has appreciated 34% since the January results, "driven by optimism around the growth runway ahead for the highly profitable Services business, near-term weakness in iPhones discounted by the market, the launch/preview of new content subscriptions, and most recently, the settlement of all litigation with Qualcomm that all but assures Apple will have a 5G iPhone on its 2020 roadmap," the note advises.

While skeptics are thought to continue focusing on the "quality of the iPhone installed base," challenges with Apple's Chinese market share, and signs of maturing App Store trends, Cowen believes "any management commentary indicating a stabilization in iPhone demand trends and continued momentum in the major Services sub-segments are important for sustaining positive sentiment."

For iPhone specifically, revenue of $32.4 billion is expected on shipments of 41 million units, slightly above the market consensus. Improvements to channel inventory are expected from first quarter levels, but shipments and revenue for the June quarter are anticipated to be seasonally down to 34 million and $25.2 billion respectively.

Highlighting Samsung as a "steady rival" and Huawei as a "surging force in the premium smartphone market," Cowen thinks Apple will continue to face competitive challenges for a while longer. "We believe any strategy for sustained annual iPhone unit growth would have to come form differentiated and innovative features and/or a more moderate price stack given the maturity of the market," the analysts write.

Services revenue will be in the region of $10.4 billion for the quarter, a steep cut from the consensus view of $11.6 billion, which Cowen believes have risen in recent months following the disclosure of segment margins in the Q1 results. Cowen's conservative estimate is influence by iPhone's demand, including how softer consumer demand in emerging markets could "spill over" into Services.

An example cited by Cowen is the pause in gaming license approvals in China, which directly affected the App Store. "While a long backlog of games is now being processed, new rules on socially appropriate content that was recently published could further delay the supply of the most popular app category for consumers."

Other Services areas are also anticipated to be seasonally down, including Apple Care correlating with reduced unit sales, lower consumer spending affecting Apple Pay, and its Licensing arm.

For the following quarter, Services will grow 9% quarter-on-quarter to $11.4 billion, Cowen forecasts, on seasonally rising App Store sales and a reduction in the China app approvals bottleneck, as well as further expansion for Apple Music and Licensing.

"It remains to be seen if the new premium News+ service can generate meaningful subscriber volumes," the analysts propose, while also hoping for more detail about Apple's future Apple TV+ service pricing and content lineup for later this year.

Cowen has set a price target of $220 for Apple, and has classified it as a stock that will "Overperform." Apple will be issuing its latest quarterly results on April 30.
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Comments

  • Reply 1 of 32
    fumifumi Posts: 15member
    The golden years are over for Apple, IMO. I'm sure they'll still make billions in the future but their services like Apple TV+ don't look very enticing at all. Too much competition from others. These days, they just don't have great new products coming out every year that wow the public. That's more down to technology stagnating with 'the next big thing' probably still years away.
    kkqd1337trashman69hmurchisoncurtis hannahflyingdp
  • Reply 2 of 32
    I simply love these analysts. Their doom and gloom forecasts and fetish with iPhone sales provides more buying opportunities for Apple shareholdrs.
    ronnyojimbo007LordeHawk
  • Reply 3 of 32
    jcs2305jcs2305 Posts: 737member
    fumi said:
    The golden years are over for Apple, IMO. I'm sure they'll still make billions in the future but their services like Apple TV+ don't look very enticing at all. Too much competition from others. These days, they just don't have great new products coming out every year that wow the public. That's more down to technology stagnating with 'the next big thing' probably still years away.
    You got all that from an analyst guess ? Interesting..
    edited April 26 leavingthebiggronnlkruppn2itivguyyojimbo007
  • Reply 4 of 32
    DAalsethDAalseth Posts: 609member
    JUST IN: Analyst makes a prediction in order to drive the stock down so they can buy and profit when the real numbers come in. Film at eleven.
    mdriftmeyerleavingthebiggspace2001pscooter63ronnhmurchisonlkruppn2itivguy
  • Reply 5 of 32
    jungmarkjungmark Posts: 6,687member
    40 million units is a “struggle”?
    leavingthebiggking editor the grateronnyojimbo007
  • Reply 6 of 32
    bluefire1bluefire1 Posts: 890member
    As someone who has purchased a new iPhone every year since 2007, this is the first time that, based upon what I’ve read to date, I may not purchase this fall’s newest model. 
    edited April 26 chemengincurtis hannah
  • Reply 7 of 32
    SpamSandwichSpamSandwich Posts: 31,087member
    As the doomsayers love to say: DOOOOOOOOOMED!
    pscooter63ronnflyingdp
  • Reply 8 of 32
    technotechno Posts: 699member
    DAalseth said:
    JUST IN: Analyst makes a prediction in order to drive the stock down so they can buy and profit when the real numbers come in. Film at eleven.
    Exactly! I have been using this predictable behavior to my advantage for over 15 years. I have significantly increased my shares because of it.
    edited April 26 ronnn2itivguySpamSandwich
  • Reply 9 of 32
    kkqd1337kkqd1337 Posts: 199member
    I actually think this analysts review is fairly realistic. I wouldn’t call it positive or negative. It’s a fairly mid-ground report.

    But yeah, it’s just an opinion and anything can happen. 
    chemenginrogifan_new
  • Reply 10 of 32
    seankillseankill Posts: 467member
    bluefire1 said:
    As someone who has purchased a new iPhone every year since 2007, this is the first time that, based upon what I’ve read to date, I may not purchase this fall’s newest model. 
    I’ve gotten new ones every 2 years since the 3G. Still using my iPhone 7+, looking toward 2020. The upgrades just aren’t worth the cost anymore. 
    elijahgmuthuk_vanalingamchemenginn2itivguy
  • Reply 11 of 32

    Doom doesn't happen overnight. Apple is not doomed per se, but they may show stagnant growth.

    What some of these opinions tell you, aside from any conspiracies about driving stock down, is that it's more to caution investors. We keep hearing the words "record breaking" or "all time high", but those words in marketing speak are carefully spun for a specific purpose.

    I've worked at companies where on a PR front they performed great, but if you saw the data, you'd realize they were not as great as what their PR is saying.

    edited April 26 chemenginrogifan_new
  • Reply 12 of 32
    sflocalsflocal Posts: 4,612member
    techno said:
    DAalseth said:
    JUST IN: Analyst makes a prediction in order to drive the stock down so they can buy and profit when the real numbers come in. Film at eleven.
    Exactly! I have been using this predictable behavior to my advantage for over 15 years. I have significantly increased my shares because of it.
    I did as well.  I bought a bunch in 2008 after the crash, and more a few months ago and profited very well. It’s actually a shame how AAPL is manipulated by Wall Street but if they’re going to profit by it, I might as well too.  It’s a tick-tock cycle.
  • Reply 13 of 32
    maestro64maestro64 Posts: 4,562member
    another analysis sniffing toilets of supplier trying to count turds to back into some sort of number phones apple may or may not sell. Oh lets not forget Apple is not reporting those numbers anyone and getting a some sort of indication on what Apple service business will pull in is going to more of challenge, no toilets of suppliers to sniff for made up numbers.
  • Reply 14 of 32
    elijahgelijahg Posts: 913member
    maestro64 said:
    another analysis sniffing toilets of supplier trying to count turds to back into some sort of number phones apple may or may not sell. Oh lets not forget Apple is not reporting those numbers anyone and getting a some sort of indication on what Apple service business will pull in is going to more of challenge, no toilets of suppliers to sniff for made up numbers.
    And why do you think Apple are no longer reporting numbers?
    edited April 26 curtis hannahmuthuk_vanalingam
  • Reply 15 of 32
    rogifan_newrogifan_new Posts: 3,979member
    Both AT&T and Verizon reported slower upgrade rates than in the past. I think it’s a combination of phones being good enough now and the new phones coming out being too expensive. I don’t think there is much Apple can do about phones being good enough now. Building new phones that are more expensive isn’t the answer.
    elijahgmuthuk_vanalingamflyingdp
  • Reply 16 of 32
    rogifan_newrogifan_new Posts: 3,979member
    DAalseth said:
    JUST IN: Analyst makes a prediction in order to drive the stock down so they can buy and profit when the real numbers come in. Film at eleven.
    Ah so that’s why Tim Cook wrote that long letter last quarter and the front page of apple.com was pushing trade-in deals for the XR and XS. Anyone who isn’t blind can see that people aren’t upgrading as frequently as they used to and there aren’t as many new markets to penetrate. This isn’t just affecting Apple, it’s hitting all smartphone makers.
    elijahgmuthuk_vanalingamtmaycanukstorm
  • Reply 17 of 32
    elijahg said:
    maestro64 said:
    another analysis sniffing toilets of supplier trying to count turds to back into some sort of number phones apple may or may not sell. Oh lets not forget Apple is not reporting those numbers anyone and getting a some sort of indication on what Apple service business will pull in is going to more of challenge, no toilets of suppliers to sniff for made up numbers.
    Any why do you think Apple are no longer reporting numbers?
    That’s a good point. Apple announced they will stop counting numbers hoping a decrease in sales wouldn’t outweigh increased profit margins, then the next quarter they have decreased profit. I wouldn’t be surprised they are having a relatively large decrease in iPhone sales, even if they end up compensating with their services by next quarter(and it’s unclear if the services will be out by then).
    elijahg
  • Reply 18 of 32
    kruegdudekruegdude Posts: 340member
    fumi said:
    The golden years are over for Apple, IMO. I'm sure they'll still make billions in the future but their services like Apple TV+ don't look very enticing at all. Too much competition from others. These days, they just don't have great new products coming out every year that wow the public. That's more down to technology stagnating with 'the next big thing' probably still years away.
    So you’re saying that Apple was counting on indefinite sales increases on their iPhones and that they were not able to see this coming and plan? Also, we know so little about Apple TV+ that there really nothing to be enticed about yet. What we do know is that streaming media is a major segment of cash flows for corporations and Apple has the ability to make something like that work. 
  • Reply 19 of 32
    kruegdudekruegdude Posts: 340member
      elijahg said:
    maestro64 said:
    another analysis sniffing toilets of supplier trying to count turds to back into some sort of number phones apple may or may not sell. Oh lets not forget Apple is not reporting those numbers anyone and getting a some sort of indication on what Apple service business will pull in is going to more of challenge, no toilets of suppliers to sniff for made up numbers.
    Any why do you think Apple are no longer reporting numbers?
    To answer that you should look at why Apple reported those numbers to begin with when everyone else didn’t
  • Reply 20 of 32
    elijahgelijahg Posts: 913member
    elijahg said:
    maestro64 said:
    another analysis sniffing toilets of supplier trying to count turds to back into some sort of number phones apple may or may not sell. Oh lets not forget Apple is not reporting those numbers anyone and getting a some sort of indication on what Apple service business will pull in is going to more of challenge, no toilets of suppliers to sniff for made up numbers.
    Any why do you think Apple are no longer reporting numbers?
    That’s a good point. Apple announced they will stop counting numbers hoping a decrease in sales wouldn’t outweigh increased profit margins, then the next quarter they have decreased profit. I wouldn’t be surprised they are having a relatively large decrease in iPhone sales, even if they end up compensating with their services by next quarter(and it’s unclear if the services will be out by then).
    If Apple isn't able to maintain margins and needs to charge £1000 for a phone to keep them in line (around 35-40%) with previous years, they need to downsize their workforce. They've filled Apple Park and pretty much every office in a mile radius of Infinite Loop, the R&D costs have ballooned in recent years. But has the quality and frequency of innovations from Apple really increased in line with R&D spend? They produced the first iPhone with an R&D budget of about $3-400m per year in the 5 years up to its release, now they spend $3 billion a year on R&D. That's 750% more, has that 7.5x increase really been worth it?

    So far, the margins themselves haven't been affected, and as you mention the bump in price will only result in profits from phones decreasing over time (possibly even at this quarter's earnings report). The pushing up of prices was a stop-gap measure to try and prevent a fall in profits, but its a really short term solution and one that historically, Apple's been wise to avoid. Like many others, with the decrease in new features and increase in cost, I've switched from a two year phone cycle to a 4 year one. My 6s whilst a bit creaky still works fine and does 90% of what a Xr does.
    MisterKit
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