Apple Inc, the world’s most valuable company, is expected to report a decline in revenue for the second straight quarter by over 4%. This is due to consumers shunning non-essential purchases such as iPhones and Mac computers, and a slowdown in growth at its services business. Despite better-than-expected earnings from its U.S. technology peers, Apple is set to post its first ever revenue declines across product lines, with hardware sales declining over 7% to $71.93 billion in the second quarter.
According to Cowen and Co analysts, Apple is facing moderate headwinds in its hardware businesses as iPhones face modest contraction in premium device demand, and the iPad and Mac businesses could be weighed down by consumer and enterprise trends. Mac sales, which account for nearly a tenth of Apple’s revenue, likely fell by a quarter, while revenue from flagship iPhone is estimated to have declined by over 3%.
Global PC shipments slumped by nearly a third between January and March, led by an over 40% drop in those sold by Apple. The global smartphone market also shrank 13% for a fifth straight quarter of decline. Despite this, Apple investors would be encouraged by a recovery in China, the company’s third-largest market. According to Tom Forte of D.A. Davidson, the reopening of China, both from the supply chain and the consumer demand standpoint, works in Apple’s favor, and he expects iPhone sales there to rise.
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The quarter also saw a near 1% pullback in the dollar, which is typically a weak period following the holiday shopping season. Revenue in Apple’s services business, which is a key growth engine for the company and home to its App Store and video streaming service, is expected to have risen about 6%. This would mark its second lowest growth rate since at least the first quarter of fiscal 2017.
KeyBanc Capital Markets analyst Brandon Nispel believes that for Apple, it is much more about a user growth story than a unit growth story. He expects Apple to have added 30 million users to its active installed user base – the number of active Apple devices in the world. That figure stood at 2 billion as of end December. The company is ramping up its manufacturing and store presence in India as it looks to diversify its supply chain and gain consumers. The market could contribute $20 billion to annual revenue by 2025, according to brokerage Wedbush estimates.
In conclusion, while Apple’s results may mark a weak finish to Big Tech earnings, the company’s efforts to diversify its supply chain and gain consumers in developing economies such as India and Brazil may hold the key to future growth.
