Photograph by Luca Bravo
Text size
Apple
is included in the income statement for the June quarter, which is due to be completed on Tuesday, surrounded by a cloud of investor problems – which can be a great setup for a stage for the world's second largest company after market capitalization.
One of the great growth stories of the past, Apple (ticker: AAPL) lately has shrunk. In March, revenues of $ 58 billion went down 5% from the previous year and the surplus was 10%. One key question is that the sale of Apple iPhones has softened, due to a combination of weaker demand in China, where the company has been hurt by the ongoing US / China trade, and by consumers remaining on new phone deals ahead of shiny new models to come. Apple reported a 17% fall from the previous year's iPhone revenue in March. The iPhone product cycle in September 2019 is expected to provide only modest hardware upgrades, with the arrival of faster 5G phones that are not expected before the fall of 2020.
Meanwhile, investors are eager to see results from the company's accelerated push-in services. Service revenue increased by 16% in the March quarter – but it is ahead of the roll-out of key new services announced earlier this year, including Apple TV + streaming video service and Apple Card credit cards launched in conjunction with Goldman Sachs. [19659004] For the quarter, analysts on Wall Street expect financial income in the third quarter of $ 53.3 billion, with earnings of $ 2.09 per share. Apple's own guide asked for revenues in the range of $ 52.5 billion to $ 54.5 billion, gross margin of 37% -38%, operating expenses of $ 8.7% -8.8%, other revenue of $ 250 million and a tax rate of $ 16. 5%.
For the September quarter, Street consensus requires $ 60.98 billion dollars and EPS of $ 2.66.
In addition to the focus on services and iPhone sales, investors will look for an update on the status of the company's business in China and Trump Administration's annoyance with Apple's plan to build Mac Pro in China rather in USA. They will also look for details of the economic impact of the anticipated acquisition of
Intel
The (INTC) modem business, responding to the news that the Ministry of Justice has begun to look at the power of major technology platform companies, and the growing scrutiny of the company's 30% App Store Sales Commission.
UBS analyst On Monday, Timothy Arcuri says conversations with investors suggest that there are low expectations for the quarter and fall iPhones, with particular concerns both for China and services growth. That said, he repeated the buy ranking on the stock and raised his price target to $ 235, from $ 225, noting that many investors are willing to look past the phone cycle in 2019 and look forward to what would be a stronger cycle by 2020 with the arrival of 5G phones.
JPMorgan analyst Samik Chatterjee who has an overweight and $ 239 on the stock, writes that bears expect continued trade considerations to drive software revenues and prospects, while bulls are encouraged by the potential for surprises up in the iPhone broadcasts.
Chatterjee says that recent supply chain controls point to reduced headwinds and potential upside for the investor's expectations for the September quarter.
Morgan Stanley 's Katy Huberty wrote in a research note last week that negative investor sentiment despite the improvement of the data points for iPhone and services, and low expectations for the September quarter gives a "positive earnings set-up." She repeated her overweight assessment and raised the target price to $ 247 from $ 231. Huberty writes that there is a "clear catalyst path beyond earnings" that makes the Apple stock a top pick for the second half. 19659004] Wedbush analyst Daniel Ive s, who maintains an Outperform rating and $ 235 target price, says his own checks find "stable iPhone demand globally on the way into the crucial September quarter with some seats and taking it overall we would be characterized as better than feared in light of a very noisy time for Cupertino. "He adds that the Services business is still a" linchpin "for Apple's valuation – he believes the business is worth $ 400 billion to $ 450 billion and is still in the early days of monetization. "While China is still a wildcard," he writes, "we are hailing Apple's future course into the FY20 and beyond."
Apple Monday morning rose $ 1.61, or 0.8%, to $ 209.35.
Write to Eric J. Savitz at eric.savitz@barrons.com
