Apple (AAPL) will report its second quarter earnings after the bell on Thursday, as Wall Street braces for what has the potential to be a sizable drop in iPhone sales out of China. According to Counterpoint Research, iPhone sales fell 19% in the quarter, while rival Huawei continued to regain its footing after the US attempted to kneecap the company by keeping it from accessing US chips in 2019.
The anticipated pullback in iPhone shipments follows back-to-back quarters of revenue declines out of Greater China, one of Apple’s most important sales regions. For Q2, revenue is set to drop 28% year over year.
Shares of Apple are off some 5% year to date and roughly flat over the last 12 months. Shares of Big Tech rivals like Microsoft and Google, meanwhile, are up 25% and 37% over the last year, respectively.
For the quarter, Apple is expected to report earnings per share (EPS) of $1.50 on revenue of $90.3 billion, according to analyst estimates compiled by Bloomberg. That would equate to a 4.75% year-over-year revenue decline.
Apple’s iPhone revenue is anticipated to drop around 10.8% to $45.75 billion in the quarter, while iPad revenue is set to fall 11%. Analysts also anticipate both Mac and Wearables to decline 5% year over year.
“At this point, expectations are pretty darn low,” Dan Niles, founder of Niles Investment Management, told Yahoo Finance.
“Competition from China isn’t going away, they’re late to AI, and unfortunately, you’re paying a pretty high PE multiple at 25 times for a company whose March quarter revenues they guided to is exactly the same as three years ago,” he added.
But there are some potential bright spots for Apple in the quarter. Services revenue is expected to grow 11% year over year to $23.28 billion. Analysts also anticipate gross margin will improve 5% year over year to 46.59%.
Apple is also gearing up for its Worldwide Developers Conference (WWDC) in June where it will reportedly unveil the latest versions of its iOS, macOS, watchOS, iPadOS, and visionOS operating systems. One of the biggest announcements at the show will likely be how Apple will integrate generative AI into its various products.
The company is late to the generative AI party, with rivals across Big Tech already rolling out their own product offerings to consumers and enterprise customers. But that doesn’t mean Apple has been twiddling its thumbs. The company has been busy buying up AI firms and building its own large language model to potentially power its AI efforts.
Apple is also looking to work with OpenAI, Google, and others to get its AI offerings up to snuff, according to Bloomberg’s Mark Gurman.
Generative AI is still a relatively niche product among consumers. Sure, Google and Samsung offer generative AI capabilities on their smartphones, and PC makers are increasingly leaning into so-called AI PCs, but the applications still feel largely like tech demos rather than game-changing features that will significantly drive sales. Apple has the opportunity to change that.
But first it needs to get through earnings.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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