Technology

Apple Q3 Earnings To Be Same – Strong iPhone Sales And Growing Services

Apple Q3 earnings
By Original: Rob Janoff [Public domain], via Wikimedia Commons
The Apple Q3 earnings report would be no different from the past, another strong quarter on the back of tremendous iPhone sales and strong service performance, notes Guggenheim Partners analyst – Robert Cihra (via AppleInsider). The iPhone maker is scheduled to report its third fiscal quarterly earnings on July 31 after the market closes.

Strong iPhone sales

As the trend suggests, iPhone shipments rise during the first quarter of a given fiscal year and decline in the following two quarters. Again the fourth quarter sees a rise in the iPhone shipments because the quarter includes the first shipment of the phones launched in September.

So, experts believe the trend would continue when Apple reports its fiscal third-quarter results later this month. During the second-quarter, the company shipped 52.2 million iPhones and the third-quarter should see lower shipments.

Cihra has maintained the iPhone unit sales forecast at 43 million, an increase of 4% year over year. Also, the analyst has raised the revenue estimate for Apple Q3 earnings to $52.9 billion, up from $52.4 billion. Cihra expects the iPhone average selling price to increase by 14% year-over-year.

“Investors have not seemed overly impressed with iPhone X uptake to date,” Cihra wrote, “but we think they ought to be much more impressed by Apple’s ability to raise ASP double-digits without impacting unit share in an otherwise no-growth smartphone market, illustrating the power of its high-end demographic and peel-off-the-top model.”

Analyst Toni Sacconaghi with Bernstein Research expects Apple to ship 38.8 million units, a slight drop in the unit shipments from the same period last year. However, the decline would be compensated by the boost in the iPhone average selling prices.

Apple Q3 earnings – focus on services segment

Talking of Apple’s service division, Cihra believes the segment will continue to perform well. He added that the service revenue would increase 28% year-over-year to $9.3 billion with the App Store adding 38% of that revenue, followed by Media content and Licensing.

Separately, Morgan Stanley analyst Katy Huberty also raised Apple’s revenue and iPhone sales forecast. The analyst estimates iPhone sales of 39.8 million units for the quarter, while the service sector is expected to grow by 32%.

“We expect Apple to report an in-line June quarter and provide a slightly weaker than consensus September quarter outlook due to a possible October launch of the 6.1-inch LCD iPhone,” Huberty notes (via AppleInsider).

In case Apple decides to delay the launch of the LCD model, the company is still expected to produce around 90 million iPhones in the second half.

“iPhone results matter less late in a cycle and consensus expects flattish iPhone growth going forward as the market matures,” wrote Huberty.

As a result, investors would focus more on the services to know if Apple has progressed with the base monetization efforts, and if it can push the overall growth of the company despite dropping device revenue.

Morgan Stanley has increased the price target for Apple stock to $232, up from $214 earlier. Huberty believes that a negative impact of the trade war or a longer push-out of the low-end October iPhone might reflect on Apple’s quarterly guidance and the stock price.

For reference, Apple announced its fiscal second-quarter earnings in May reporting $61.1 billion in revenue and $13.8 billion in profit. During the quarter, the company shipped 52.2 million iPhones, 9.1 million iPads, and 4.07 million Macs.

2018 iPhones – what to expect?

Talking of 2018 iPhones, the Guggenheim analyst is expecting Apple to launch a 6.5-inch iPhone X Plus, a 6.1-inch LCD-based iPhone and an update to the current 5.8-inch model. Interestingly, the analyst believes that Apple would drop the number from the name of the LCD version, and it would just be called “iPhone,” something similar to what Apple did with the third-generation iPad.

It is widely believed that 2018 iPhones would adorn either OLED or LCD screens. Further, the new iPhones are expected to come with Corning’s new Gorilla glass 6 and new shades. The 2018 iPhones fitted with the OLED screen would be priced higher than the LCD model. The 6.1-inch model, however, would bear a competitive price tag to attract the buyers who want to buy an iPhone, but don’t want to spend $1000.

Though there is no confirmation over the price, the consensus is that Apple may price its 6.1-inch iPhone in the $600-$700 range. To cut the price, it is believed that the 6.1-inch phone would not get 3D touch, a feature that most users do not see as a necessity anyway.