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Here’s how things could get even worse for Apple

Here’s how things could get even worse for Apple
[Photos: Xavier Wendling/Unsplash; energepic.com/Pexels]

Anybody with interest in Apple–financial or otherwise–knows the company bummed everyone out on January 2 when it warned of a very underwhelming holiday quarter for iPhone sales. The company revised down its expected revenues from $89 billion to $84 billion. That’s bad news because the iPhone provides roughly two-thirds of Apple’s revenue.

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On Tuesday after the bell we’ll finally hear the exact numbers. If there’s any potential bright side at all, it’ll be that the damage wasn’t quite as bad as Apple warned. But Wall Street is expecting the company to announce $84 billion, as guided. That’s down from the $88.3 billion it reported in the same quarter in 2017. As for iPhone-specific revenue, Wall Street expects $53 billion on sales of 68 million devices.

Apple CEO Tim Cook placed much of the blame for the shortfall on the China market. A number of factors, including phone pricing, strong local phone competition, and the brewing U.S.-China trade war may have played a role. The big question now becomes how long Apple expects the China problem to last.

This will be the first quarter in which Apple will not provide a unit sales number for the iPhone. Instead, analysts will be left to estimate unit sales numbers based on revenue and the all-important ASP (average sale price) number. Apple would have looked much better had it announced that reporting change in front of a winning quarter.

As grim as things were during the holidays, there is potential for more bad news when Apple issues revenue guidance for next quarter. Wall Street is expecting roughly 45 million iPhones sold in the first three months of 2019 (typically a down quarter for iPhone sales), but the number could be worse depending on Apple’s take on the China problem.

With iPhone sales slowing, analysts will be especially interested to see what Apple has to say about the performance of its services business (the app store, Apple Music, iCloud, etc.), which is expected to pick up the slack, revenue-wise. Apple estimated $10.8 billion in services revenue for the holiday quarter, reflecting solid growth, and analysts will be looking for signs of continued growth in the March-ending quarter.

We’ll have the analysis on Apple’s earnings after the numbers drop tomorrow afternoon.

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