Apple Preview: iPhone Shipments Are a Tough Call


Apple Inc.

The View From Silicon Valley

Apple (ticker: AAPL) investors are bracing for what could be an unsightly earnings forecast.

They have every right to be squeamish about the state of iPhone, which accounts for about 60% of Apple's total revenue. Rumors are percolating that iPhone X is all but dead, and shipments of iPhone are lagging in the June quarter.

Apple reports second-quarter results on Tuesday -- analysts expect earnings of $2.71 per share on revenue of $51.9 billion -- but it is the third quarter that has their collective attention.

Bernstein analyst Toni Sacconaghi, noting softness in iPhone sales from supply-chain data, lowered his third-quarter forecast of unit shipments to 38.8 million to 41 million, compared with an average estimate of 43 million. He reduced his fiscal 2018 EPS estimate for Apple to $10.71 from $10.93; the Wall Street consensus is $11.43.

Katy Hubert, managing director of research at Morgan Stanley, last week reduced her iPhone shipment estimates in the June quarter from 40.5 million to 34 million. [Apple sold 41 million iPhones in the year-ago June quarter.]

In a largely favorable forecast, CFRAResearch analyst Angelo Zino acknowledged iPhone unit growth year-over-year will taper to 4% and 3% for the March and June quarters, respectively. But he expects selling prices will improve 14% to 15% for both quarters.

The world's most-valuable public company, at $833.3 billion, faces more than just iPhone headaches.

Apple's recently released HomePod smart speaker isn't exactly flying off the shelves as it faces competition from less-expensive entries from (AMZN) and Alphabet (GOOGL) unit Google, according to Deutsche Bank.

"Poor reviews and a significant fall-off in demand post the launch suggest the company has missed the mark," Deutsche Bank analyst Sherri Scribner says. Deutsche estimates Apple will sell about 5 million HomePods this year, a number that will have minimal impact on Apple's overall revenue.

Apple Chief Executive Tim Cook met privately with President Trump last week. It's a good bet they discussed at length escalating trade tensions between the U.S. and China, where many of Apple's devices are made. The government's decision to impose up to $150 billion of tariffs on Chinese goods risks damaging Apple's efforts to jack up revenue in China, where it now has 41 retail stores in the region -- the most outside of the U.S.

At the same time, Apple transferred about $16 billion to a Dublin escrow account in a step toward compliance with a European Commission order to pay back taxes.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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