China remains a critical metric for Apple’s earnings, with analysts projecting a 2.6% fall in sales in the country. The world’s largest company faces fierce competition from Chinese domestic phone makers, particularly Huawei.
Apple is set to report its third-quarter earnings for the fiscal year 2024 after the US markets close on 1 August.
The tech giant reclaimed its position as the world’s largest company from Microsoft and Nvidia, with its market capitalisation standing at $3.36 trillion (€3.09 trillion) as of 30 July. Apple shares are up 17% year-to-date and have risen approximately 26% since its March quarter earnings release, thanks to the announcement of its largest-ever share buyback programme of $110bn (€191.6bn) and the long-awaited AI adoption.
In the upcoming earnings report, investors will focus on two key metrics: the sales revenue in China and the development of Apple Intelligence.
What lies ahead?
According to several sources of consensus, the average forecast of Apple’s third-quarter earnings revenue is $84.21bn (€77.52bn), up 3% from the year-ago quarter. Earnings per share are expected to be at $1.34 (€1.23), or an increase of 6.3% from last year. The estimated figure suggests that Apple will return to growth after the sales decline in the previous quarter.
Sales in China may extend a decline
China remains a critical metric for Apple’s earnings, with analysts projecting a 2.6% sales decline in the country. According to research firm International Data Corp (IDC), iPhone shipments in China fell by 3.1% year-on-year in the second quarter, while Android phone sales rose by 11.1%.
Apple faces fierce competition from Chinese domestic phone makers, particularly the top smartphone seller, Huawei. For the first time, Apple dropped out of the top five China smartphone sellers, while the local rivals Vivo and Xiaomi both recorded double-digit growth in the second quarter. Apple’s market share in China shrank to 14% in the second quarter, down 2% from a year ago.
Globally, Apple has also been losing market share to its Chinese rivals, with IDC data indicating that its market share fell to 15.8% in the June quarter from 16.6% a year ago.
Apple Intelligence in spotlight
Apple unveiled its AI plans at the company’s Worldwide Developers Conference (WWDC24) in June, which boosted its shares surpassing Microsoft, and becoming the world’s largest company again. Apple announced its partnership with OpenAI and referred to the AI services as Apple Intelligence, which integrates generative AI technology across its iPhone, iPad, and Mac. Investors are eager to see further AI developments in the upcoming earnings report.
On Monday, Apple released the first version of Apple Intelligence with iOS 18.1, allowing developers to test the new features. The AI assistant is expected to enhance Siri, enabling the chatbot to generate emails and images. This advanced technology will only be available on newer handsets, starting with the iPhone 15 Pro, potentially driving a significant wave of handset upgrades. However, the testing period could be lengthy as Apple may have concerns about the stability of Apple Intelligence.
Apple service to stay strong
In the March quarter, the fastest-growing segment, Service revenue, reached $23.9bn, (€22.1bn), contributing to 26% of the overall revenue and significantly exceeding the estimated $23.27bn (€21.5bn).
Apple Services, which include the Apple Store, Apple Pay, Apple TV+, Apple Music, Apple Arcade, and iCloud, have emerged as standout performers for the company. In the March quarter, the gross margin of the service segment surged to 75%, lifting Apple’s overall gross margin to a record 47%. Wall Street expects Apple’s gross margin to be just above 46% in the June quarter.
Apple anticipates that overall sales will return to low single-digit growth, with its Services sales maintaining a stable pace of double-digit growth in the June quarter.
