[Earnings Preview] AI, Apple's new “trump card”? Apple of “Mag7” is scheduled to announce financial results on 2nd (Friday)!

AI, Apple's new “trump card” facing difficulties in the Chinese market?
Facing the imminent introduction of Apple Intelligence and the predicament in China, investorsKeep an eye on iPhone's performancethey will. In the market, sales of the same business are currently expected to decline further to 37.7 billion dollars.

According to the latest report released by Counterpoint on July 15, global smartphone sales increased 6% from the same period last year for 3 consecutive quarters. Meanwhile, the Counterpoint report predicts that Apple's iPhone sales volume will remain flat, and strong growth in Europe and Latin America will be offset by sluggish unit sales in China, which is facing tough competition from local Chinese companies, including Huawei.

Even in the latest report published by the research company Canalys, it is shown that Apple's shipments in China fell sharply in the 2nd quarter of this year and slipped from the top 5. According to general forecasts compiled by Visible Alpha, analysts expect Apple's third-quarter sales to fall 2.6%.Greater China will account for more than 18% of Apple's total sales in 2023And there is no change that China is a very important market for Apple.

Meanwhile, CFRA analysts said that the third quarter will be the end of Apple's decline in sales, and there is a possibility that it will move towards recovery thereafter. An analyst at the same bank sees that Apple's fate is improving due to price discounts that are boosting iPhone shipments in the Greater China region.

J.P. Morgan analyst Samik Chatterjee also showed optimistic predictions and placed Apple on the “positive watch” list before financial results were announced. Also, heApple is in an advantageous position to take advantage of the upcoming artificial intelligence cycleIt was said.

Mr. Chatterjee predicts that “in order for Apple to reassure investors, the upcoming AI upgrade cycle will officially begin in 2025 (end of September) and progress further in 2026.” He anticipates that both iPhone sales and total sales will exceed market expectations, which may ease investors' concerns about Apple's evaluation. Also, he expects Apple's third-quarter sales to reach 85.3 billion dollars, and earnings per share will be 1.38 dollars, both of which exceed general market expectations.

Strong growth in software services
The software service business is expected to continue to grow strongly, driven by App Store sales and subscription growth. Also, the gross profit margin of this business is expected to rise due to an increase in premium product sales and service sales.

In the last quarter, the service business reached more than 26% of total revenue, and due to Apple's significant advantage in the service market and the fact that only Apple has the ability to expand its service business by utilizing devices,This business is expected to become Apple's new growth engine in the near futureAnalysts have shown that.

Apple is integrating AI not only into its own apps, but also into its ecosystem of hardware and services. On 6/10, Open AI and Apple announced a partnership to integrate ChatGPT into Apple experiences including iOS, iPadOS, and Mac OS systems. In the future, Apple will integrate more AI functions into OS and hardware, and there is a possibility that it will promote an increase in subscription revenue. Investors are also paying attention to updates to Apple's own generative AI software “Apple Intelligence,” and there is a possibility that this will be the catalyst for a large-scale device upgrade cycle.

Counterpoint Research's recent survey predicts that Apple's total revenue will break through the 400 billion dollar mark for the first time in 2024 due to growth in the hardware and services sector.By 2025, Apple's services business will account for a quarter of the company's revenue and could break through the $100 billion mark per year for the first time. Also, although iPhones still account for half of earnings, Apple's service strategy and growth in emerging markets drive the entire business, so even if iPhone sales slow down, the service business will increase corporate value.

— MooMoo News Zeber
Source: moomoo, Bloomberg
This article uses automatic translation for some of its parts