Apple AAPL is set to report first-quarter fiscal 2018 results on Feb 1. All eyes will be on the performance of the company’s latest flagship device — iPhone X.
iPhone, since its launch in 2007, has been the mainstay of the tech giant’s revenues. On an average, 50-60% of Apple’s quarterly revenues come from iPhone.
Apple’s first smartphone to feature a full-screen organic light-emitting diode (OLED) display, the 10th anniversary iPhone started selling across the globe on Nov 3, 2017. Hence, first-quarter revenues will include almost five weeks of sales including the crucial Black Friday and Christmas week.
Click here to know how the company’s overall Q1 performance is expected to be.
Lackluster iPhone X Demand
The premium device received warm welcome from customers initially. According to data from analytics firm Mixpanel, quoted by Business Insider, iPhone X adoption was at 4.76%, better than iPhone 8 Plus at 3.59% and iPhone 8 at 2.78% in late November 2017.
However, the device failed to catch up later due to significant supply constraint issues, which affected Apple’s delivery schedules. Further, premium pricing — iPhone X starts at $999 — has also lowered demand, particularly in cost sensitive regions like South East Asia.
According to Nikkei, which was quoted by The Inquirer, Apple recently slashed its production target by half from almost 40 million projected at the time of iPhone X release. Apple has cited sluggish holiday season salesfor its decision to cut production.
Although the production cut will have no imminent negative impact, it is to be noted that slower-than-expected holiday season sales in key markets like the United States, Europe and China doesn’t bode well for the company’s top-line growth.
However, demand for the low-priced iPhone 7 and iPhone 6 continued to be strong during the holiday season. According to TechCrunch, which quoted data from Flurry Analytics, older devices took the top spots in terms of activations during the holidays, primarily due to heavy discounts.
Higher ASPs to Boost Sales
Nevertheless, Apple’s premium pricing strategy along with brand loyalty is likely to boost the top line in the quarter. iPhone X’s premium pricing drives average selling price (ASP), which will offset a decline in unit volume sales. This will drive top-line growth in the quarter.
This is well reflected in the Zacks Consensus Estimate. For the first quarter, total revenues from iPhone and related products and services are projected at around $59.3 billion, up 9.1% from the figure reported in the prior-year quarter.
Zacks Rank & Stocks to Consider
Apple carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader technology sector are Micron Technology MU, Lam Research LRCX and The Trade Desk TTD, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Micron, Lam Research and The Trade Desk is projected to be 10%, 14.85% and 25%, respectively.
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