Apple Preview: Will Asia spoil the earnings?

After the conclusion of Thursday's trading in the United States, Apple will be publishing its results. As one of the undisputed leaders in the industry, Apple seems to be an immortal symbol of what a technology company should be. However, for several quarters now, "The Apple" seems to no longer entice investors as it once did. This is due to the crossfire of unfavorable global phenomena in which the company has found itself recently. The upcoming results will be closely monitored by investors, with particular emphasis on forecasts for the end of the year and the next year.
Financially, the company's situation is good, but investors expect something more to justify a P/E ratio of nearly 40.
The market expects:

• EPS at the level of 1.76
• $101 billion in revenue
• $26 billion in net profit

However, these values are secondary in the current market environment. This is demonstrated by the results of the previous two quarters, in which the company exceeded expectations regarding revenue and EPS, yet the price fell by a few percent in response.
First and foremost, the company will have to report on how their new flagship product, the iPhone 17, is performing. Revenues from the iPhone alone are expected to be around $50 billion, and the market expects sales growth, both in terms of value and volume, in the range of 7-12%. The bar of expectations is set high, so disappointment in the key segment may exert pressure on the company's price. Some analysts point out that the waiting time for new Apple products is close to zero, which some analysts associate with limited sales, but it may also result from the company patching holes in supply chains.

Growth is also expected in the services segment, which has become extremely important for the company and shareholders in recent years. Service revenue is expected to be around $26 billion, but its margin is much higher than "hardware," at over 70%. The resolution of legal disputes with Google and Epic Games and the increase in the price of "Apple TV" give investors reasons to expect double-digit growth in this sector.

Potentially the biggest and definitely the most difficult threat to evaluate for Apple is market risk, which includes China and India. The strategic relocation of production to Asia allowed the company to achieve fabulous margins for many years, but today the geographical spread has become a burden for the company.
China represents a dozen percent of Apple's total revenue, but it is an increasingly difficult market to maintain. The company has problems with competition from local manufacturers, local regulations hinder the operation of many Apple services, and the impact of tariffs and the trade war between China and the USA is expected to cost the company over a billion dollars. Another threat has emerged from India. The USA is expanding the scope of its trade war to this country as well, which poses a huge threat to the company's margin, which at great cost has moved a large part of its production there to diversify the Chinese risk.

Investors will expect from Apple primarily:

• Meeting their expectations regarding growth in iPhone and services sales.
• A strategy that will allow the company to address its weaknesses in the Asian market. Particularly important will be the launch of "Apple Intelligence" in the Chinese market before the end of the year.
• Equally important will be estimating the potential impact of tariffs and the cyclicality of the iPhone market.
• A side issue, but still important, may be the matter of Apple's AR glasses and VR goggles projects. Previous attempts to capture this market have ended in failure. The market will expect a strategy for monetizing and expanding this segment or ending unprofitable initiatives in the "Wearables" segment.

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Source: xStation5