Apple’s Q3 revenue is expected to experience its largest drop since 2016 due to slower iPhone sales.
Apple's Q3 revenue is expected to experience its largest drop since 2016 due to slower iPhone sales.
Apple’s iPhone Sales Dip in Slow Economy, Highlights Importance of AI Strategy
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Apple is expected to report a dip in iPhone sales for the April-June quarter, as shoppers held out for the release of a new model in a slow economy. This emphasizes the importance of Apple detailing how it is using artificial intelligence (AI) to augment growth. Analysts argue that with the use of AI, Apple can continue to set the pace in the smartphone industry.
The world’s most valuable firm is set to wrap up Big Tech earnings this quarter with a likely 1.6% drop in total quarterly revenue, its steepest decline in third-quarter revenue since 2016. According to 24 analysts polled by Visible Alpha, iPhone sales likely fell over 2% in the period, compared to a near 3% increase a year earlier and a 1.5% rise in the previous quarter.
This quarterly report may differ from the positive earnings from other tech giants such as Meta Platforms, Alphabet, and Microsoft, which have shown resilience in their cloud businesses and an uptick in digital ad sales.
“We expect Apple’s updated comments on its AI aspirations to be a focus,” analysts at Wells Fargo wrote in a research note. The company has so far avoided explicitly mentioning AI at its events, setting it apart from tech giants such as Alphabet and Microsoft. However, Bloomberg News revealed that Apple has quietly built its own framework to create large language models known as “Ajax”. Any commentary by Apple on their AI technology could potentially boost their stock.
Apple’s shares have already gained over 50% this year, significantly surpassing the nearly 37% increase in the tech-heavy Nasdaq Composite.
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iPhone Slowdown
Most of the weakness in iPhone sales is anticipated to come from the Americas, with revenue expected to decline by 6%. Sales from China, Apple’s third-largest market, are predicted to remain flat due to an uneven economic recovery. Nevertheless, Apple has fared better than Android rivals in the country.
Overall smartphone shipments to China declined by 2.1% in the second quarter, according to market research firm International Data Corp. Despite concerns about a soft China market, analysts from Piper Sandler believe that Apple’s position in the country is solid and any decline in iPhone sales is expected to be minimal or non-existent. Additionally, strong sales momentum in India is likely to offset any sales weakness from China.
Mac and iPad sales are also expected to experience declines of 10.6% and 11.2% respectively, according to Refinitiv data. However, Apple’s services business, which includes the App Store, audio and video streaming services, is predicted to be a bright spot. This segment, accounting for roughly a quarter of Apple’s total revenue, is forecasted to grow by 5.7%. The uptick in the ad market and price increases for iCloud subscriptions contribute to this positive outlook.
As Apple prepares to release its new iPhone 15, which may feature the more widely accepted USB-C port on some models, analysts are hopeful that this will contribute to a potential uptick in sales for the July-September quarter. Apple traditionally does not provide quarterly outlook, but analysts expect the company to provide insight into how it is utilizing AI to improve its future products.
In conclusion, while Apple is expected to report a decline in iPhone sales for the April-June quarter, the company’s utilization of AI and its upcoming product releases, such as the iPhone 15, offer potential for future growth. With Apple’s strong position in China and the momentum in India, any sales weakness from one market is balanced by strength in another. Additionally, the services business continues to be a bright spot, benefiting from an upward trend in the ad market and price increases for iCloud subscriptions. Apple’s continued focus on innovation and its AI aspirations position the company for long-term success in the competitive smartphone industry.
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