Apple Inc (NASDAQ:AAPL)
Information Technology - Computers & Peripherals | Reports October 25, After the Market Closes
The Estimize consensus is calling for earnings per share of $1.71 on $47.20 billion, 5 cents higher than Wall Street on the bottom line and about $400 million on the top.
1. iPhone Sales
The iPhone continues to be Apple’s biggest catalyst, accounting for two thirds of its revenue in any given quarter. The phone has largely struggled in the past year due to the limited appeal of the iPhone 6s and increasing competition. However, the recent release and success of the iPhone 7 have put many of those concerns to rest. Sales of the phone have gotaten off to an incredible start and now account for 43% of all iPhone sales recorded in the quarter. The phone was only available for the final two weeks of Q3, making this an even more remarkable feat. New-found optimism around the newest iPhone has pushed shares up 17% in the past 3 months. Prior to the launch, Apple was expected to be a big drag on earnings season, and they very well could be if they don’t live up to the hype on Tuesday.
2. Suppliers
More often than not, earnings from Apple’s suppliers are a great indicator of iPhone sales. Last quarter major suppliers began to show signs of improvement in anticipation of the new phone. Semiconductors including Cirrus (NASDAQ:CRUS), Qorvo (NASDAQ:QRVO) and Skyworks Solutions (NASDAQ:SWKS), all of which produce chips or wireless solutions in the iPhone, surprised the market by exceeding analysts expectations. After Apple’s strong Q3 and the remarkable success of the iPhone 7, analysts are ramping up estimates for these chipmakers. Many of them are now forecasting double digit growth on both the top and bottom line. Apple reports earnings before many of its suppliers and will likely set the tone for these names for the remainder of earnings season.
3. Other Products
Excluding iPhone sales, Apple’s other products are expected to struggle. The rest of Apple’s portfolio—which consists of tablets, computers, watches and other electronic devices—constitutes one third of revenue in any given quarter. These products have struggled lately primarily driven by weakness in China, currency headwinds and low upgrade demand. Last quarter, Apple sold 9.9 million iPads, compared to 10.3 million in the second quarter. Upgrade demand for these tablets has been abysmal, so it makes sense that the iPad 2 is still the most widely owned iPad to date.
Mac sales have also been disappointing, declining 11% in the third quarter. Apple is prepared to unveil new MacBooks later this week that will hopefully instill some confidence that computers aren’t becoming obsolete. Given how inexpensive and powerful PCs have become, it’s difficult to imagine any new MacBook will justify a $1,000+ price point.
The Apple Watch, on the other hand, appears to be gaining some traction. Most reviews for this newest iteration of the timepiece have been positive but Apple doesn’t release specific figures for the watch so its success is not as clear.
Outside of hardware, Apple is driving global expansion, particularly in India, and has collaborated with IBM (NYSE:IBM) and Cisco (NASDAQ:CSCO), just to name a few, to build out its enterprise software.