Apple reports Fiscal second-quarter financial results after the close of the markets today and so brings the week-long exercise where pundits spend the first half of the week talking about what Apple will say followed by the second half of the week where the selfsame pundits talk about what Apple said. Here’s some food for thought:
Apple has enjoyed a tremendous run and each subsequent quarterly result is more heavily scrutinized than the last. It has been 11 years since Apple reported a year-over-year decline in revenue. That simple statistic sums Apple’s “big” problem. It is a problem all large companies face – how to produce the growth rates once enjoyed now that you are grown. Eleven years ago, Apple reported quarterly revenue of $1.48B. That figure has grown 30-fold over the subsequent years. Analysts today are looking for $43.54B – slightly lower than a year-ago.
Last quarter iPhone sales represented about 56% of total revenue. By far, the largest share of company revenue. Analysts are expecting 38.2M in the quarter – with a range of 34M to 43M. To beat consensus, I think Apple will need to have shipped more lower-end models (4S and 5C) during the quarter. This will show-up in the average price of iPhones sold during the quarter. But it will also point to traction in emerging markets – places like China and India – so I think Apple will tout this fact if it materializes. Geographic expansion is how most large companies grow (think Coke and Pepsi) and Apple will need that within their arsenal in addition to any new product classes (read: wearables) or service sectors (read: streaming services, mobile payments) they might enter over the next two years.
In the year-ago quarter, Apple sold 37.4M iPhones so the average expectation of 38.2M represents a roughly 2% year-over-year increase. Everything I’m tracking suggests the first calendar quarter of 2014 has been dismal for tech. I take the under on iPhone sales and think the figure will be close to 37M for the quarter.
Last quarter, iPad sales were the second largest share of total revenue – representing about 20% of total revenue. The current consensus quarterly estimate for the iPad is 19.3M – with a wide range between 15-22M. Again, everything I’m watching suggests a pretty strong headwind in 1Q14 for spending on consumer tech. There are also a number of items specific to the tablet market. Lower tier and lower priced tablets have continued to gain momentum as the market has matured. These tablets are getting better and in an expanding set of use cases are “good enough.” Moreover, tablet ownership in the US is approaching 50 percent. Households are holding onto tablets longer or buying secondary and tertiary units for the household. I take the under on iPad sales and expect a figure closer to 17M – a year-over-year decline of about 13 percent.
Here are some historical slides that I’ll update once the results are in later today.