Apple Inc. (AAPL) Earnings Preview: iPhone 7 Plus Did Well

Apple Inc. (AAPL) Earnings Preview: iPhone 7 Plus Did Well
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Apple Inc. (AAPL) is scheduled to release its next earnings report on Tuesday after closing bell, although analysts are so focused on the iPhone 8 that the next couple of earnings reports are little more than a formality for many investors. It’s safe to say that all the eggs are in the iPhone 8 basket, so Apple Inc. (AAPL) can’t afford to mess that one up.

Smartphone demand weakened

On average, Wall Street is projecting $53 billion in sales and earnings of $2.02 per share for the March quarter. Apple Inc. (AAPL) guided for $51.5 billion to $53.5 billion in revenue and a GAAP gross margin of 38% to 39%.

Based on the earnings reports from AT&T, Verizon and T-Mobile, smartphone demand weakened during the first quarter. AT&T reported record low upgrades, and it was a similar story at Verizon and T-Mobile. Raymond James analysts believe sell-through trends in the U.S. have weakened, but despite this, they still believe the iPhone took share from other smartphone makers in every major country except China.

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Needham analyst Laura Martin estimates that Apple Inc. (AAPL) sold about 53.35 million iPhones during the March quarter, representing a 5% year over year increase. They peg iPhone revenue at $34.45 billion, a 5% increase from last year. She estimates iPad units at 9.9 million, an 8% decline, and iPad revenue at $4.3 billion, a 3% decline. Services revenue is pegged at $6.9 billion, a 15% year over year increase.

iPhone average selling price at risk

UBS analyst Steven Milunovich noted in one of his earnings previews on Apple Inc. (AAPL) that a recent survey from Consumer Intelligence Research Partners suggests that the company might miss estimates for the iPhone average selling price. The survey indicated that the iPhone 7 Plus was about 33% of the mix, versus the historic 20% to 30% range. Also the iPhone SE appeared to have sold better than expected, making up 31% of the mix combined with older iPhone models. Typically, the lower-priced iPhones are only about 20% to 25% of the mix.

CIRP also found that the storage mix was weak as well because 47% of iPhone buyers opted for the base configuration versus 35% to 40% usually, which again will weigh on the average selling price. Additionally, 80% of purchases were from upgraders, versus 70% to 75% during fiscal 2016. Milunovich suggests that the standard iPhone 7 may have been polarized during the first quarter as value-oriented and innovation-oriented buyers purchased one.

Other matters in Apple Inc. (AAPL)’s earnings report

Along with the standard numbers, he’s also expecting another $40 billion share repurchase program, which will increase Apple Inc. (AAPL)’s authorization for buybacks from $250 billion to $310 billion. He’s also predicting a 10% increase in the dividend, bringing it to 62 cents.

Shares of Apple Inc. (AAPL) stock were little changed during regular trading hours on Thursday as they hovered around $143.66 for most of the day.

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