Apple (AAPL) will report its second-quarter results after the bell on Thursday as Wall Street braces for a potentially significant drop in iPhone sales from China. iPhone sales fell 19% in the quarter, according to Counterpoint Research, while rival Huawei continued to gain traction after the U.S. tried to bring the company to its knees by denying it access to U.S. chips in 2019.
The expected decline in iPhone shipments follows consecutive quarters of declining sales in Greater China, one of Apple’s top sales regions. For the second quarter, revenue is expected to decline 28% year-over-year.
Shares of Apple have fallen about 5% since the start of the year and are virtually unchanged over the past 12 months. Shares of Big Tech rivals like Microsoft and Google have risen 25% and 37%, respectively, in the last year.
Apple is expected to report earnings per share (EPS) of $1.50 on revenue of $90.3 billion for the quarter, according to analyst estimates compiled by Bloomberg. This would correspond to a decline in sales of 4.75% compared to the previous year.
Apple’s iPhone sales are expected to fall about 10.8% to $45.75 billion in the quarter, while iPad sales are expected to decline 11%. Analysts also expect both Mac and wearables to decline 5% year over year.
“Expectations are pretty darn low at this point,” Dan Niles, founder of Niles Investment Management, told Yahoo Finance.
“The competition from China isn’t going away, they’re late to AI, and unfortunately at 25x you’re paying a pretty high P/E for a company whose March quarter sales are exactly the same as three years ago,” he added added.
However, there are some potential bright spots for Apple this quarter. Services revenue is expected to rise 11% year over year to $23.28 billion. Analysts also expect gross margin to improve 5% year-over-year to 46.59%.
Apple is also preparing for its Worldwide Developers Conference (WWDC) in June, where it will reportedly unveil the latest versions of its iOS, macOS, watchOS, iPadOS and visionOS operating systems. One of the biggest announcements at the show will likely be how Apple will integrate generative AI into its various products.
The company is late to the generative AI journey, with Big Tech competitors already launching their own product offerings for consumers and enterprise customers. But that doesn’t mean Apple has been twiddling its thumbs. The company has been busy acquiring AI companies and building its own large language model to potentially advance its AI efforts.
Apple also wants to work with OpenAI, Google and others to update its AI offerings, according to Bloomberg’s Mark Gurman.
Generative AI is still a relatively niche product among consumers. Sure, Google and Samsung offer generative AI features on their smartphones, and PC makers are increasingly embracing so-called AI PCs, but the applications still largely feel like technical demos rather than groundbreaking features that will significantly increase sales. Apple has the opportunity to change that.
But first the revenue has to come through.
Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.
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