The world’s most valuable firm is expected to report a dip in iPhone sales in the April-June quarter as shoppers held out for a new model in a slow economy. Amid rising inflation, higher interest rates, and fears of a recession, consumers and businesses have been cutting back on spending. That has made it challenging for Big Tech firms to grow their revenue and earnings, which underpin their valuations.
Apple CEO Tim Cook has said that global economic uncertainty hurts demand for electronics, including smartphones and computers. Analysts say that Covid-19 restrictions in China and a strong US dollar have made it harder to sell devices in the past year. The company is facing a downturn in the smartphone market, which accounts for most of its overall sales. Analysts have lowered their expectations for its third-quarter earnings.
The quarterly results are likely to show a 1.6% drop in total quarterly revenue, according to Refinitiv – the steepest decline in third-quarter revenue for Apple since 2016. Analysts have been expecting an average of $84 billion. Revenue from the iPhone, which makes up nearly half of the company’s sales, is expected to fall by 2%. Apple has reported several supply chain issues, including component shortages and a phasing out of carrier subsidies that have depressed sales for its most popular phone. A battery replacement program allowing owners to buy a cheaper new phone has also led some people to hold on to older models.
Mac sales, which account for almost a quarter of the company’s sales, are expected to have fallen by around 13%. Apple has been struggling to boost demand for its laptops as competitors have launched new machines with more powerful processors and improved keyboards, such as Lenovo’s (LNVG.S) IdeaPad Y700 laptop, announced in March.
While the company’s bottom line is likely under pressure, investors could benefit from growth in its services business, home to the App Store and audio and video streaming services. The segment is likely to rise by around 6%, a slight acceleration from last year’s first quarter when it gained 5%.
Investors will watch closely for updates on Apple’s work to develop generative artificial intelligence, which could allow the company to make its products more intelligent and better adapt to user habits. The company’s hiring efforts suggest it is doubling down on its AI strategy, which could help it win the post-mobile fight with rivals such as Alphabet’s (GOOGL.O) Google and Amazon’s (AMZN.O) Alexa. The company has recently posted openings for several teams in San Diego, the Bay Area, and Seattle to build new capabilities in machine learning. That is a shift from a few years ago when the company rarely discussed its progress in this area.