Apple to Report Q2 Earnings Amid iPhone, China Woes

Apple Stock

Apple (NASDAQ:AAPL) is gearing up to announce its second-quarter earnings after the market closes on Thursday, with analysts closely watching for signs of a potential decline in iPhone sales, particularly in China. According to Counterpoint Research, iPhone sales dipped by 19% in the quarter, while competitor Huawei continued its recovery trajectory after facing restrictions on accessing US chips in 2019.

The anticipated decrease in iPhone shipments comes on the heels of consecutive quarters of revenue downturns in Greater China, a critical market for Apple. Analysts predict a 10.9% year-over-year decline in revenue for Q2.

Despite the broader market rally, Apple’s stock has remained relatively stagnant, registering a 5% decline year-to-date and minimal movement over the past 12 months. In contrast, tech giants like Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG, GOOGL) have seen their shares surge by 25% and 37% respectively over the same period.

Analysts estimate Apple’s earnings per share (EPS) to be $1.50 on revenue of $90.3 billion for the quarter, translating to a 4.75% decline in revenue compared to the previous year. iPhone revenue is projected to decrease by approximately 10.8% to $45.75 billion, with declines also expected in iPad, Mac, and Wearables categories, each by 11%, 5%, and 5% respectively.

Dan Niles, founder of Niles Investment Management, noted the prevailing low expectations surrounding Apple’s performance, citing persistent competition from Chinese rivals and concerns about the company’s positioning in AI technologies.

Despite the challenges, there are potential bright spots for Apple in the quarter. Services revenue is forecasted to grow by 11% year-over-year to $23.28 billion, while gross margin is expected to improve by 5% to 46.59%.

Looking ahead, Apple is preparing for its Worldwide Developers Conference (WWDC) in June, where it is expected to unveil updates to its operating systems, including iOS, macOS, watchOS, iPadOS, and visionOS. A key focus of the event will likely be Apple’s integration of generative AI into its product ecosystem.

While Apple may be playing catch-up in the generative AI space compared to its competitors, the company has been actively investing in AI firms and developing its large language model. Collaboration efforts with OpenAI, Google, and others are also reportedly underway to enhance Apple’s AI capabilities, according to Bloomberg’s Mark Gurman.

Generative AI, although still niche, presents an opportunity for Apple to differentiate its products and potentially drive sales. However, the immediate focus remains on the upcoming earnings report, which will provide insight into Apple’s performance amidst ongoing challenges and opportunities in the market.

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