Apple (AAPL) shares moved lower Thursday ahead of the tech giant's all-important March quarter earnings, expected after the closing bell, with investors likely focused on the depth of iPhone demand heading into the fifteenth year of its launch and speculation of an anniversary version of the iconic handset.
Analysts expect Apple post a bottom line of $1.43 per share, down 6% from last year, with revenues falling 4.4% to just under $93 billion amid uneven China sales that could be offset by tailwinds from a weaker U.S. dollar.
The group is also expected to unveil $90 billion worth of buybacks and dividends, but markets are likely to be more focused on commentary from CEO Tim Cook heading into the tech giant's autumn iPhone cycle.
iPhone sales comprised around 78% of Apple's overall revenues last quarter, even as supply-chain issues linked to disruptions at its main factory in Zhengzhou, China, curtained shipments of its higher-end handsets throughout the holiday season.
iPhone Delays Boost Q2 Demand
Sales were down 8.2% at just under $66 billion, but Apple said they would accelerate over the three months ending in March as iPhone pro handsets that went undelivered over the holiday period found their way to customers, adding that overall gross margins would improve to between 43.5% and 44.5%.
That forecast appeared accurate after Foxconn, the Taiwan-based chip contractor and biggest Apple iPhone assembler, estimated record sales of around $4.8 billion over the three months ending in March.
Foxconn, which reports first quarter earnings on May 11, nonetheless cautioned that sales for the three months in June would slow notably, amid a pullback in handset demand linked to fading consumer spending and a glut in global inventories.
That view was echoed late last night by chipmaker Qualcomm (QCOM), which includes Apple as one of its biggest customers, as it warned that 'the evolving macroeconomic backdrop has resulted in further demand deterioration, particularly in handsets, at a magnitude greater than we previously forecasted."
That puts a tremendous amount of focus on Cook's post-earnings commentary on both market conditions and any indications as to how it sees demand holding up into the autumn, when it is expected to launch an anniversary version of its iconic iPhone.
"The entire Street will be laser focused on Apple's quarter as when Cook talks everyone else listens given Apple's unique perch and perspective around consumer demand globally and what this means for the path looking forward," said Wedbush analyst Dan Ives, who carries an 'outperform' rating with a $205 price target on Apple stock.
"We would expect relatively conservative June guidance as this is all about the drumroll to the main event with the anniversary iPhone 15 launch slated for the September timeframe."
India May Be The Next Frontier
Apple may also take a hit from weakening personal computer sales, which research group IDC estimated to have fallen nearly 30% from 2022 levels over the first quarter -- with an outsized 40% slump from Apple.
Still, IDC sees a "significant market upside" for PC sales heading into the summer months "as consumers look to refresh, schools seek to replace worn-down Chromebooks, and businesses move to Windows 11", the group said in its closely-tracked report.
Mac sales fell 29% from last year over the three months ending in December to $7.74 billion, although iPad sales rose 30% to $9.4 billion, a figure Cook said was "due in part to a favorable compare to the December quarter a year ago when we experienced significant supply constraints."
Overall China sales were down 7.8% to $23.91 billion last quarter, and the economy's uneven recovery from post-Covid restrictions could hold down gains into the March quarter, even as data from industry research group Canalys indicates Apple was the country's best-selling mobile phone brand with a 20% market share.
Canalys data, however, also indicated that Apple's March quarter iPhone shipments were down 3% from last year to 13.3 million units.
We continue to see China related risks as the most significant for the stock and expect the company to accelerate its effort to diversify its footprint," said D.A. Davidson analyst Tom Forte, ".
Apple's recent foray into India, however, as its looks to expand its manufacturing base beyond southeast Asia could offset some of the expected China weakness.
Bloomberg reported last month that Apple generated nearly $6 billion in revenues from India over the first three months of the year, a near 50% gain from 2022 levels, shortly before the group opened its first retail outlets in Mumbai and Delhi in a market dominated by Android handsets.
"China accounts for 70% of all smartphone manufacturing. India represents 16% of smartphone manufacturing today and, at the minimum, we expect Apple to continue to ramp its efforts in that country," he added. "If we use Samsung as a guide, it manufactures 75% of its smartphones outside of China, including in Argentina and Vietnam. This gives us confidence that Apple can be much more diversified in the future."
Apple shares were marked 0.93% lower in early afternoon trading Thursday to change hands at $165.90 each, a move that still leaves the stock with a year-to-date gain of around 28%.
