The quarterly results from Apple may see a decline in revenue. But that will likely be counterbalanced by robust demand for the new series of iPhones, the iPhone 12 models.
Apple’s 4th quarter results for the quarter ending September 30 are likely not likely to be terribly exciting. The supply chain delays because of the covid19 pandemic have already delayed the launch of the iPhone 12 series. The impact of the delayed launch of the four new iPhone 12 models will be felt in the quarterly results.
A Damp Quarterly Result
The highlights of Apple’s 4th quarter results are likely to be:
- Q4 Revenue: $63.48 billion expected vs. $64.04 billion year-over-year
- Q4 Adjusted earnings per share: 70 cents vs. 76 cents year-over-year.
This is as per consensus estimates compiled by Bloomberg.
Others expect Apple to report total revenue of $64.2 billion, a modest gain compared to last year’s 4th quarter.
Morgan Stanley analyst Katy Huberty sees the potential “for an expectations miss.”
She considers the average analyst forecast to be “aggressive.”
Sales of iPhones are likely to drop significantly from the previous quarter. This had happened in 2011 when Apple had also delayed the release of new models to mid-October of that year. Sales had plummeted 19% that year compared to the prior quarter.
Huberty predicts Apple will manage only $60 billion in 4th quarter revenue and profits of 62 cents per share.
An earnings miss will have an unknown impact on Apple’s share prices. Many including Huberty will be buyers in case of any dip in Apple’s share price.
Everyone expects the iPhone 12 series to do extremely well and Apple will report a strong first quarter of 2021.
But The Quarterly Results Will Likely Show Growth in Services, Desktops, Laptops, iPads, and Apple Watches
Analyst consensus predicts growth in Apple’s service revenue from iCloud, AppleCare, Apple TV+ and Apple News. Service revenue is likely to be $13.87 billion compared to $13.16 billion in Q32020 and $12.5 billion in the 4Q2019.
Desktop, laptop, iPad and wearable sales revenue are also likely to grow compared to the last year and over 4Q2019. Covid19 pandemic lockdowns are likely to lead to increased demand for these products during the covid19 pandemic. New iPads and new Apple Watch series were also launched and became available to customers in September.
Looking Forward, Better Quarter And Quarterly Result Coming Up
Tim Cook is likely to give some directional commentary regarding preorders for the new 5G-enabled iPhone 12 series models. That will set the expectations regarding the demand growth trajectory for the iPhone 12. The final calendar quarter and Apple’s first-quarter encompasses the holiday quarter.
The signs are that demand for the iPhone 12 is twice as strong as the demand for its predecessor. This presents a positive sign for the next quarter.
Pent Up Demand And Carrier Led Promotions
Almost a third of the 950 million installed iPhones worldwide are in the upgrade window. This might lead to an unprecedented level of demand for the iPhone 12 series.
The iPhone is now available in four variants to cater to different price points.
Carriers including AT&T, Verizon, and T-Mobile are all offering trade-in credits to persuade customers to go in for a switch. Verizon is offering customers up to $550 off of a new iPhone while AT&T is giving up to $800 off. This will lead to additional demand.
Cloud of Uncertainty in The Quarterly Results Regarding Google’s Payments to Apple
One unknown right now is the US Justice Department taking aim at Google in an antitrust lawsuit. This is a long-term concern as any actual outcomes will be decided in the courts only in 2021.
Google may have paid $10 billion this year to Apple for being the default search engine on iPhones. If that is the case – that is about 20% of Apple’s total services revenue.
If Google’s payment stop, that will reduce Apple’s profits by $10 billion. The silver lining to all this — Apple may enter the search engine business which is far from impossible.
Stock Prices Going Forward
Many on Wall Street are likely to stay on the sidelines policy pending data on iPhone 12 sales.
The stock will likely remain range-bound until the next quarter results are out in early February of 2021.
Apple shares have performed magnificently so far with a rise of 53% year-to-date. The S&P 500 has gained just 1.8%.