Apple set to break its own record for profitability
Apple is set to beat its own record for the most profitable quarter in corporate history when it reports earnings on Thursday, with analysts forecasting net income of at least $19bn.
The three months to December 2017 — the smartphone maker’s fiscal first quarter and traditionally its biggest — is the first to include sales of the new iPhone X and is expected to beat its previous quarterly record of $18bn net income in 2015.
Apple executives said in November they were expecting its “biggest quarter ever” and a return to double-digit revenue growth during the holiday season for the first time in years.
The US corporate earnings season is in full swing this week with other tech leaders including Amazon, Facebook and Alphabet also expected to report higher revenues and profits.
Strong tech sector earnings are likely to keep Wall Street’s current bull run intact after equities had their best opening to a year since 1987, buoyed by tax reform and a weaker dollar. The S&P 500 tech sector has already risen nearly 9 per cent in January after surging 37 per cent last year. Apple shares hit a new all-time high above $179 in mid-January, taking its market capitalisation above $900bn, but has since ebbed slightly to $171.
Analysts at market researcher Canalys estimate Apple shipped 29m iPhone Xs in the quarter, making it the top-selling smartphone in the run-up to Christmas. Analysts forecast that Apple sold 81m iPhones in the quarter, driving total revenues up 11 per cent to about $86bn.
With iPhones expected to make up more than two-thirds of Apple’s total sales, some analysts are even more optimistic about the results. Morgan Stanley predicts revenues will jump 18 per cent to $92bn, with net income as high as $21bn.
The high pricing of the iPhone X, which starts at $999, combined with Apple’s unusual move to release different iPhone models several weeks apart, means there is a wider spread of expectations for its results than normal.
Neil Cybart, analyst at Above Avalon, a daily Apple newsletter, believes the average selling price of an iPhone could jump by more than $100 to a new record, well above $800.
“Apple saw stellar iPhone X sales” in the quarter, Mr Cybart said, largely because Apple was able to overcome concerns that it was unable to manufacture enough devices to meet demand. “Apple’s supply chain was able to ramp iPhone X production much faster than anyone expected,” he said.
However, a blockbuster performance in the December quarter could mean iPhone sales slow down faster this year than Wall Street is expecting.
If Apple provides revenue guidance for the March quarter that comes in short of Wall Street’s current expectations of $66bn-$69bn, it faces the seemingly paradoxical prospect of its shares falling at the same time as it reports record profits.
The outcome could depend on how Apple fares in China. Morgan Stanley predicts a “strong” double-digit percentage increase in iPhone unit sales in the world’s largest mobile market for the December quarter, compared with a slight decline in the US. Nonetheless, Canalys estimates that overall smartphone sales in China fell 4 per cent last year, the market’s first ever annual decline. “The market has slowed faster than expected,” said Canalys analyst Mo Jia.
As well as predicting strong iPhone sales, investors are hoping that US tax reforms will lead to an increase in Apple’s capital return programme. However, any update on Apple’s dividend and share buyback scheme is unlikely before April.
Apple has said it expects to pay a record tax bill of $38bn on its more than $250bn of overseas profits.
Source:- https://www.ft.com/content/568b8200-02f0-11e8-9650-9c0ad2d7c5b5
