Apple: Will Santa skip the gadget stock?
Apple will update on fourth quarter earnings on Thursday, with analysts bracing for a less-than-jolly Christmas outlook as waning iPhone demand could fail to cheer.
For the full fiscal year, the consensus estimates hover around $383bn in sales, slightly below the figures from 2022, with earnings per share expected to be $6.07, a slight dip from the prior year’s $6.14.
Apple’s stock hit an all-time high in July, despite recent declines in sales and profits, firmly securing its position as the world’s most valuable stock at $2.7t (£2.2t).
Sales of iPhone, iMac and iPad fell in the last quarter, raising concerns about product performance. Weak iPhone demand drove a 1.4 per cent drop in net sales over the previous year.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, predicts “muted” growth in this area, citing the global squeeze on budgets.
“As the cost of living globally remains elevated, there will be a limit to how many people are prepared to spend on big-ticket items,” she explained.
Instead, investors will be counting on the growth of Apple’s Wearables and Services, which includes the App Store and Apple Music, hoping the mega-cap company can reduce its reliance on the iPhone.
“This helps underpin profits because margins in software are more attractive than in manufacturing physical goods. The crucial part to all of this will be any hint on the outlook as we head into Christmas – it’s this trajectory that has the ability to move markets,” Lund-Yates said.
The iPhone 15 was released late in September but Wall Street analysts have suggested demand from China, Apple’s third-biggest market, is slipping. They have pointed to shorter shipping times on Apple’s website, suggesting that either demand has fallen, or supply has greatly increased.
But Ben Barringer, technology analyst at Quilter Cheviot, said it could be five or more months before a full picture of how well the new iPhone has done emerges.
He is more concerned about intensified competition from rival phone maker Huawei, which pipped Apple to the post in releasing its latest phone.
“Apple has been winning share because Huawei was out of the market but does it now lose share?” he asked.
Just over a week ago, Jefferies wrote in a note that the Chinese tech giant has now stolen the top spot in the market from Apple. “The trend suggests iPhone would lose to Huawei in 2024,” it read.
Apple warned in the summer that fourth quarter revenue would be down on the last but it often likes to surprise, as it did recently with earnings per share.
Damindu Jayaweera, a technology analyst at investment bank Peel Hunt, said: “This much bad sentiment in fact leaves some space for positive surprises. One area could be its services business, which continues to gain ground as more of our spend moves through Appstores.”
This Christmas, Santa may be delivering Apple Watches, AirPods and digital vouchers as alternatives to iPhones.
It rounds off a relatively successful period of earnings for the ‘magnificent seven’ tech stocks.