Bad news expected from Apple on iPhone sales

Apple has warned investors that its quarterly earnings report will bear bad news about iPhone sales. The question now is just how bad.

The world’s most valuable company forecast in January that revenue would drop for the first time in more than a decade as iPhone sales slow. Analysts will probably be reassured by a sales decline that doesn’t outstrip Apple’s projections for the quarter that ended in March.

“From the stock point of view, it is already built into people’s expectations,” said Abhey Lamba, a San Francisco-based analyst at Mizuho Securities, who recommends buying Apple shares. “If iPhone sales end up in line to slightly better than expectations then it’ll be taken positively.”

Apple’s stock has fallen 18 per cent in the past 12 months amid mounting investor concern that customers are upgrading their phones less regularly. That could mean that demand for iPhones, which accounted last quarter for two-thirds of Apple’s revenue, has peaked.

The Cupertino, California-based company’s introduction last month of the lower cost iPhone SE was partly seen as an effort to secure new customers in countries such as China or India -- emerging markets where a growing middle class has a mounting appetite for status symbol consumer products.

Apple in January said that revenue in its fiscal second quarter would be from $50 billion to $53 billion, compared with $58 billion a year earlier, the first quarterly decline since 2003. The average of 33 analysts’ estimates compiled by Bloomberg is for sales of $52 billion. They also project that the company will sell a little more than 50 million handsets, compared with 61.2 million in the period a year ago.Even if the unit sales decline isn’t as bad as feared when the company reports earnings on Tuesday, investors will cast a keen eye over what kind of iPhones are being sold.

The effect of the lower cost iPhone SE could help boost the number of handsets or give customers who had planned to buy a more expensive handset the choice of a cheaper phone. Were 10 million customers to buy the SE instead of the pricier 6 or 6S, that would reduce the average sales price per unit by about $10, according to Nomura Securities analyst Jeffrey Kvaal.

Global slowdown

Global smartphone sales growth will slow to 7 per cent this year, the slowest rate in the product’s history, Gartner Inc. predicted in March. About 150 million users in the Asia-Pacific region will delay upgrading to smartphones during the next three years until prices fall enough to make them desirable, the research firm said.

Music, Apps

Apart from handset sales, chief executive Tim Cook has been keen to play up the significance of Apple's services business. Those operations, including iTunes and the App store, encourage customers to keep buying Apple products and are more profitable than the hardware business. The pace at which sales from services grows may serve to assuage investor concerns about the consequences of slowing iPhone sales.

Apple’s push to expand its services revenue and lock customers into its hardware suffered a blow this month in China. The State Administration of Press, Publication, Radio, Film and Television ordered the iTunes Movies and iBooks services shuttered, six months after they became available.

“The growing iPhone installed base could enable Apple to grow its higher-margin services business through additional iTunes, apps and software sales as well as through services such as Apple Pay and Apple streaming music service,” Michael Walkley, an analyst at Canaccord Genuity, wrote in an April 13rd note to clients. “Despite our expectations for softer iPhone sales for the next couple quarters, we believe the growing, loyal, and sticky iPhone installed base provides Apple with long-term opportunities to drive further top-line growth.”

Bloomberg