Apple Seen Forecasting Revenue Decline for iPhone Launch Quarter

(Bloomberg) -- When Apple Inc. launches a new iPhone, that usually means rising revenue. Chances are that won’t happen this year.

Apple reports fiscal third-quarter results on Tuesday, but all eyes will be on its forecast for the fiscal fourth quarter. That’s when the Cupertino, California-based technology giant is expected to release new versions of its flagship handset.

In the halcyon days of the smartphone industry, glitzy iPhone introductions would send Apple fans scurrying to stores to snap up the latest model. Nowadays, people are holding onto their devices for longer and growth has plateaued.

The company made a concerted effort in the first three months of the year to revive disappointing iPhone sales, resorting to discounts, generous trade-in offers and new financing options to lure buyers. Those measures continued in the past quarter, including a “buy one, get one free” iPhone XR deal from select carriers that Apple promoted in its stores.

Analysts expect Apple revenue to be $61 billion in the fiscal fourth quarter, down about 3% from a year earlier. During the same iPhone-launch quarters in 2018 and 2017, revenue climbed 20% and 12%, according to data compiled by Bloomberg.

Apple shares were essentially unchanged at $209.63 at 2:47 p.m. in New York ahead of the results after the market close.

The major attraction in this year’s models lies in enhanced cameras: the two high-end models to replace the iPhone XS and iPhone XS Max will include three back cameras, up from two, and a successor to the iPhone XR will include a second back camera.

Beyond additional cameras, the new iPhone models will look similar to the 2018 versions, which looked like the 2017 iPhone X. Apple is planning a more extensive revamp of the iPhone with an updated design, 5G connectivity, and new augmented reality cameras for 2020, Bloomberg has reported.

Apple has started ramping up iPhone production and is preparing suppliers to build between 75 million and 80 million units for the fiscal fourth quarter and the following holiday quarter, Bloomberg News reported last week. Analysts estimate Apple sold 70 million to 80 million new iPhones in the second half of 2018.

For its fiscal third quarter, Apple is expected to report revenue of $53.3 billion, in line with a year earlier, according to analyst estimates compiled by Bloomberg.

Analysts see iPhone revenue of about $26.5 billion in the fiscal third quarter, down from $29.5 billion in the same quarter of 2018. That will mean the iPhone business represents less than half of Apple’s total revenue in the period -- something that hasn’t happened since 2012, according to data compiled by Bloomberg.

To some, that may be bad news. But Apple will likely highlight growing wearables sales and rising revenue from digital services. The company is expected to report record services revenue of $11.95 billion in the fiscal third quarter, according to analysts.

Wall Street will also be looking for an update from Apple on trade tensions and the supply chain. On Friday, President Donald Trump slammed the brakes on Apple getting a tariff reprieve for its upcoming Mac Pro computer.

“Given Apple’s reliance on China for sales and supply chain, we are eager to hear about management’s strategy for navigating the challenges,” said Tom Forte, an analyst at D.A. Davidson & Co.

Investors and analysts will also seek additional color on the recently announced $1 billion purchase of Intel Corp.’s modem unit.

Just the Numbers

• 3Q GAAP EPS estimate $2.10 (range $1.79 to $2.20)
• 3Q revenue estimate $53.33 billion (range $52 billion to $54.22 billion)
  • iPhone revenue $26.54 billion (Bloomberg MODL)
    • iPhone units 37.2 million (Bloomberg MODL)
    • iPhone ASP $710.42 (Bloomberg MODL)
  • Services revenue $11.88 billion (Bloomberg MODL)
• 4Q revenue estimate $61.04 billion (range $58.95 billion to $64.23 billion)
• 4Q gross margin estimate 37.8%

Data

• 23 buys, 20 holds, 5 sells
• Avg PT $210.85
• Shares rose after 8 of prior 12 earnings announcements
• GAAP EPS beat estimates in 12 of past 12 quarters
• For deeper estimates, see AAPL US MODL

Timing

• Earnings release expected July 30 after market close
• Conference call website

To contact the reporters on this story: Mark Gurman in Los Angeles at mgurman1@bloomberg.net;Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net, Alistair Barr, Molly Schuetz

©2019 Bloomberg L.P.