Apple may post its biggest fiscal third-quarter revenue drop since 2016 because of weak demand for its iPhones.
Apple’s earnings report for the April-June period, due out after the closing bell on Aug. 3, is expected to show a 1.6 percent decline in total quarterly revenue, according to Refinitiv, which would be its steepest third-quarter drop since 2016.
iPhone sales declined worldwide in the second quarter because of a slowdown in the global economy and also as customers await the new iPhone 15 series to launch in September, Reuters reported.
iPhone sales likely fell by more than 2 percent overall in the period, according to 24 analysts surveyed by Visible Alpha, compared with a 3 percent increase last year and a 1.5 percent rise in the previous period.
Analysts said the tech giant’s lackluster sales would add further pressure to reveal how it'll use artificial intelligence (AI) to augment future growth.
Apple has long depended on sales in the third quarter, as September serves as the traditional launch of its new iPhone, with some exceptions, such as the iPhone 12 and iPhone SE series.
High Inflation May Weigh on Sales
However, high inflation is likely to put a damper on Apple’s sales this year, with most of the decline coming in from North and South America, with an expected 6 percent fall in revenue in those regions.Sales in China, Apple’s third-largest market, are expected to be little changed because of an uneven post-pandemic recovery, despite faring better than its rival Android in that country.
Total smartphone imports to China declined by 2.1 percent in the second quarter, according to market research firm International Data Corp.
“Most investors feel a soft China could pose a risk to the numbers and further commentary, but Apple’s position in China is on a solid footing, and the company is likely to see only a small, if any, decline in iPhone sales,” Piper Sandler analysts told Reuters.
“If there is any sales weakness from China, it is likely to be easily offset by strong sales momentum in India.”
This year, Apple’s shares have risen by more than 50 percent, compared to a nearly 37 percent increase in the tech-heavy Nasdaq Composite Index.
As further details on the new iPhone 15 are released, iPhone sales may still receive a small bump in the final weeks of the third quarter, analysts said.
The company’s latest results would stand in stark contrast to the positive earnings from rivals such as Meta, Alphabet, and Microsoft, which have all shown an uptick in digital ad sales and growth in their respective cloud businesses.
AI May Lead to Future Earnings Boost
Apple’s services business, which accounts for roughly a quarter of Apple’s total revenue, includes its App Store, audio, and video-streaming services, may see positive growth of 5.7 percent because of an uptick in the ad market, according to some analysts.The positive earnings in services mainly come from price increases from iCloud subscriptions, which is generally similar to what has been seen in the previous three quarters.
While Apple normally doesn’t provide a quarterly outlook, analysts expect that the tech giant may expand on how it would apply advancements in AI to improve its products.
The iPhone producer has been reluctant to discuss AI at its events, compared with peers such as Alphabet and Microsoft, which have been touting their investments in that technology.
Bloomberg reported last month that Apple was developing its own framework to create its own language model known as “Ajax.”
“We expect Apple’s updated comments on its AI aspirations to be a focus,” analysts at Wells Fargo wrote in a research note.
They stated that any developments in its AI technology could boost the stock.
