The market remains jittery about Apple Inc.’s (AAPL, Financial) second-quarter 2017 earnings results, which will be released after market close on May 2. Leading banks JPMorgan and UBS warned investors that Apple’s short-term results could be below par.
"We remain bullish on Apple in 2017 given what we believe is unprecedented pent-up replacement demand, combined with expectations for a materially different iPhone product this year. Having said that, we believe FQ3 guidance could be somewhat weak assuming Apple also believes consumers will want to wait for new product availability this fall," JPMorgan analyst Rod Hall wrote in a note to clients, as reported by CNBC.
Apple’s stock price has moved steadily over the last 12 months. One major reason for the rally was Apple’s first-quarter results, which saw the company post record-breaking iPhone sales numbers.
But there were several details that got buried under the mountain of iPhone sales data during the quarter.
Fiscal quarters are typically 13-week periods, but the first quarter of 2017 had 14 weeks. The additional week surely added a bit more heft to the company’s sales numbers, although it said otherwise during the first-quarter earnings call.
"We had the benefit of a 14th week during the quarter this year, but this was offset by four factors.
- First, this year we grew China inventory significantly less than a year ago.
First, this year we grew China inventory significantly less than a year ago.
- Second, iPhone 7 launched earlier in the September quarter compared to the iPhone 6s launch the previous year, creating a more difficult comparison for the December quarter this year.
Second, iPhone 7 launched earlier in the September quarter compared to the iPhone 6s launch the previous year, creating a more difficult comparison for the December quarter this year.
- Third, the stronger U.S. dollar affected total revenue growth this year by 100 basis points. And fourth, our year-ago revenue included the benefit of a one-off $548 million patent infringement payment.
- Also, strong customer interest left us in supply/demand imbalance for several of our products throughout the quarter this year."
Apple still makes the bulk of its revenues from iPhones; nearly 70% of its total revenues during the first quarter came from iPhone sales. As such, whichever way iPhone sales swing, it will take the stock price along with it.
The recently launched iPhone was an incremental product, not a path-breaking innovation.I agree sales went over the top, but the question is: will Apple be able to sustain it? Does the product have enough demand that it can actually expand unit sales over a period of time or will it start moving the other way?
Smartphone sales in developed markets around the world have already slowed down, meaning it will be extremely critical for Apple to hold on to its iPhone unit sales numbers during the second quarter.
Apple sold 51.19 million iPhones for $32.86 billion dollars during the second quarter of 2016. That is the number the company will be up against during this year’s second quarter.
The higher sales go, the higher the stock will move. The lower they go, it is going to be a drag on the stock.
Disclosure: I have no positions in the stock mentioned above and no intention of initiating a position in the next 72 hours.
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