- Analysts expect Apple to give sluggish guidance for the current quarter, and its shares are down about 10% year to date, underperforming peers and the broader market .
- But the biggest question investors will be watching is what the overall trend is in Apple’s third-largest market: China.
Apple reports its fiscal second quarter results on Thursday after the market closes.
The company has set investor expectations low and could exceed them even if sales growth is weak. In February, Apple said it expected sales similar to last year’s $94.84 billion during the same period and iPhone sales to be flat.
Here’s what analysts expect from Apple, according to LSEG consensus estimates:
- Earnings per share: $1.50
- Income: $90.04 billion
Here’s how Apple’s business units are expected to fare in the March quarter, according to StreetAccount estimates:
- iPhone revenue: $46.31 billion
- Mac revenue: $6.85 billion
- iPad revenue: $5.95 billion
- Revenue from wearables, home and accessories: $7.80 billion
- Service turnover: $23.12 billion
Analysts expect Apple to give a forecast for the current quarter of around $83.23 billion in sales, which would represent annual growth of 1.8%. Apple shares have fallen about 10% this year, underperforming their peers and the market as a whole. Some fear that the 2023 iPhone 15 will see low demand.
But the most important theme investors will be watching is the overall trend in Apple’s third-largest market: China. In the December quarter, sales fell 13% in Greater China, which includes Hong Kong and Taiwan.
Worse still, the crisis could indicate deteriorating conditions in a key market for Apple, where Apple also makes the vast majority of its products. Over the past year, Chinese government agencies have reportedly asked their staff to limit the use of “foreign” devices – iPhones – suggesting that Apple may not have the support of China’s national leaders.
Apple also faces increased competition from local companies, including Huawei, which recently introduced a 5G smartphone despite U.S. export controls on advanced chips.
“AAPL declined significantly amid a weak iPhone 15 cycle and concerns that Apple’s business in China was structurally disrupted,” Toni Sacconaghi, an analyst at Bernstein, wrote in a note last week. He has an outperform rating on the stock.
But Sacconaghi doesn’t see Apple being permanently hampered by Chinese Communist Party sentiment, calling the current weak cycle “more cyclical than structural” and highlighting Apple’s historic volatility in the region.
“In strong iPhone cycles, Apple’s revenue in China typically grows much faster than Apple’s overall, as Chinese consumers adopt the new phone,” Sacconaghi wrote. “Strong adoption is typically followed by several quarters of lower (and often negative year-over-year) growth, as we are seeing now.”
Third-party data on China is also not strong.
Data from Counterpoint Research shows that Huawei jumped 70% on a year-over-year basis in March, while Apple declined 19%, falling to third place. However, data analysis suggests that “preliminary signs of improving iPhone demand…are broader than expected,” UBS’s David Vogt wrote this week.
Meanwhile, state statistics show iPhone sales fell 33% in February, the second straight month of declining shipments.
Aaron Rakers, an analyst at Wells Fargo, said in a March note that iPhone sales could decline 20% on an annual basis during the quarter.
Expectations for the quarter are muted, and how Apple says it sees the current quarter playing out could be more important than the March quarter results.
“There is a chance that Apple could see a turnaround/upside following a ‘better than expected’ earnings report/guide,” wrote Morgan Stanley analyst Erik Woodring, who has an overweight on the title, in an April note. “This creates a tricky setup, which we don’t think investors necessarily have to deal with.”
Apple hasn’t provided guidance since 2020, but company executives provide data points that analysts can use to project sales. “June quarter revenue and gross margin guidance will be key this quarter,” Woodring wrote.
Apple also typically tells investors during second-quarter earnings how much it plans to spend on stock buybacks for the rest of the year.
“We expect Apple to update its capital repayment plans during March quarter results, and we do not anticipate any significant deviation from recent plans,” Woodring wrote. In May 2023, Apple announced that it had authorized an additional $90 billion in repurchases.
