Consumer electronics giant Apple $AAPL reports fiscal Q3 results on Tuesday after the market close. Investors however are focused forward to the company’s 10th-anniversary iPhone 8 due out this fall. How much will DRAM and NAND prices affect margins?
Consumer electronics giant Apple $AAPL is scheduled to report its fiscal third quarter financial results on Tuesday after the market close. Apple last quarter returned to revenue growth on a year-over-year basis after three straight quarters of declining sales. Investors however are focused forward to the company’s 10th-anniversary iPhone 8 due out this fall.
Apple Consensus Forecast
Wall Street analysts expects EPS of $1.57 which would be up 11%, on revenue up 6% to $44.89 billion. Guidance is paramount with the iPhone 8 so fiscal Q4 updates are key. Analysts expect $AAPL to earn $1.81 a share on revenue of $49.21 billion in the Fiscal Q4.
In 2017 Apple has outperformed since the Donald Trump Election victory there has been a run higher on Apple, this in turn has helped fuel the run in the S&P 500, Nasdaq and Dow Jones Index to Record highs.
Phone Revenue Ahead of iPhone 8
With the focus on the iPhone 8 launch expect iPhone shipments to be affected by weaker demand from Greater China and customers waiting for the new phone’s launch. Apple will try to reduce inventory of older phone models by discounting tie ins. iPhone ASPs averaged $655 during Q2 FY’17. The weaker US dollar will also positively affect international sales. The other threat is Samsung’s Galaxy Note 8.
Will iPad Sales Recover?
Last quarter we weak iPad sales which Tim Cook addressed, see below. Apple has brought on its lowest-priced iPad with a 9.7-inch display towards the end of March at $329. At the WWDC developer event in June Apple spruced up the iPad Pro models. Watch for the effect on iPad volumes. Apple increased the base prices $50 on its new iPad Pro models to $649.
How Much Will Component Cost Rises Effect Profit Margins
For the same reason we have seen NVidia, Intel, Micron and ADM Micro shares surge it is not good news for Apple, we will see how much its affects their margins. The chip stocks have benefited from the demand for DRAM and NAND chips. Demand from Gaming and digital currencies have added to already strong demand from smartphones and cloud computing.
Apple Earnings Report Last Quarter
Apple $AAPL reported its fiscal second quarter financial results on Tuesday after the market close. $AAPL beat expectations, but revenues fell short of estimates as fewer iPhones were sold than expected. Investors had high expectations after Apple returned to revenue growth on a year-over-year basis after three straight quarters of declining sales last quarter.
Earnings: Adjusted Q2 EPS rose 4% to $2.10 vs. $2.02 Est.; Revenue $52.9B vs. $53.02B Thomson Reuters consensus estimate.Apple reported quarterly earnings on Tuesday. iPhone unit shipments: 50.8 million vs. 52 million expected by FactSet
Reaction: Apple Inc. NASDAQ: $AAPL After-hours: 144.40 -3.11 (-2.11%)
Apple CEO Tim Cook spoke on CNBC to Josh Lipton and said $AAPL is seeing “a delay in purchasing behavior.”
“We are seeing a kind of delay in purchasing behavior that we think is a consequence of the number of rumors and reports about future products,” Cook said. “That is happening. However, if you look at iPhone outside of greater China, iPhone units grew very nicely. We had more upgraders in the first half than ever before. And we had more switchers than ever before. There is a lot of good news in there.”
Demand for Apple’s products improved across most of the geographical regions except greater China. As much as 65% of sales were from the International markets.
- Revenues from the Americas rose 11% to $21.2Bil, up 11% year over year.
- Europe revenues grew 10% to $12.7Bil, up 10% on a year-over-year basis.
- Greater China saw a 14% slump in revenues of $10.7Bil for the quarter.
- Revenues from Japan rose 5% year over year to $4.5 billion
- Rest of Asia Pacific generated revenues of $3.8 billion, up 20% year over year.
Segments
- iPad sales slumped 12% to $3.9Bil in 2Q17, iPad units sold in the quarter fell 13% to 8.9MM units.Revenues of $3.9 billion were down 12% from the prior-year quarter.
- iPhone sales improved 1% to $33.2Bil from a year ago, In 2Q17, $AAPL sold 50.8MM iPhones, down 1%.
- Mac sales rose 4% rise to 4.2MM units, revenues grew 14% from the prior-year quarter to $5.8 billion.
- Services revenue topped $7Bil.
- App Store revenue grew 40% YoY.
- Apple saw double-digit revenue growth from Apple Music subscriptions and iCloud storage.
With the launch in Taiwan and Ireland, Apple Pay is now live in 15 markets.
AAPL launched Clips, an app that combines videos, photos and music into creative videos.
Total $AAPL sales up 5% to $52.9Bil.
Margins
Gross margin was 38.9%, a decline of 50 basis points (bps) from the year-ago quarter.
Operating expenses increased 9.4% year over year to $6.5 billion due to higher research & development expenses as well as selling, general and administrative expenses. As a result, operating margin plunged 100 bps from the year-ago quarter to 26.7%.
For 2Q17, $AAPL also hiked its quarterly dividend by 10.5%, declaring it at $0.63 per share. The dividend is payable on May 18, 2017 to shareholders of record as of the close of business on May 15, 2017.
As $AAPL posted 2Q17 results, the iPhone maker also announced the increase of $50Bil to its program to return capital to shareholders and is extending the program timeframe by four quarters. Under the expanded program, Apple plans to spend a cumulative total of $300Bil by the end of March 2019.
In 2017 Apple has outperformed the indices with the stock hitting an all time high of $148.09 ahead of earnings and up over 30% over the past 52-weeks. Since the Donald Trump Election victory there has been a run higher on Apple, this in turn has helped fuel the run in the S&P 500 and Dow Jones Index to record highs.
Outlook
Revenue guidance for fiscal Q3: Between $43.5 billion and $45.5 billion vs. $45.6 billion expected, according to a Thomson Reuters consensus estimate
Gross margin guidance: Gross margin between 37.5 percent and 38.5 percent next quarter incurring operating expenses of $6.6-6.7Bil.
Other incomes expected next quarter are $450MM, and the tax rate is touted to be at 25.5%.
Source: Apple, TradersCommunity, AlphaStreet
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