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Earnings Outlook: Apple earnings: What to expect from the iPhone maker

Apple Inc.’s iPhone business was hit by COVID-19 curbs in China. The company’s upcoming earnings report will show how deeply the company was impacted and how quickly it’s been able to recover.

The smartphone giant doesn’t typically communicate with investors outside of earnings reports and calls, but Apple
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executives issued a rare warning in November, disclosing that pandemic-related restrictions at a Foxconn facility would drive lower-than-expected iPhone 14 Pro and Pro Max shipments. Analysts are less concerned by what happened in the December quarter than they are with Apple’s ability to recapture those lost sales moving forward.

The results will also indicate whether Apple has been able to maintain momentum in its Mac business following a record quarter for the segment three months back. Apple isn’t expected to top that record this time around, but the Mac business could still be a source of upside amid iPhone uncertainty.

See more: Apple earnings may rely on an unlikely hero amid iPhone uncertainty

Here’s what to expect when Apple posts results Thursday afternoon.

What to expect

Earnings: Analysts tracked by FactSet anticipate that Apple earned $1.94 a share in its fiscal first quarter, down from $2.10 a share a year prior. According to Estimize, which crowdsources projections from hedge funds, academics, and others, the average estimate is for $1.98 a share.

Revenue: The FactSet consensus calls for $121.4 billion in December-quarter revenue, down from $123.9 billion a year prior. Those contributing to Estimize expect $122.4 billion.

Analysts tracked by FactSet expect iPhone revenue to have declined to $67.8 billion from $71.6. billion a year before. Consensus estimates call for $7.8 billion in iPad revenue, up from $7.2 billion a year before, along with $9.4 billion in Mac revenue, down from $10.9 billion.

Analysts model $15.3 billion in revenue from wearables, home and accessories for the quarter, up from $14.7 billion a year earlier. Services revenue is expected to rise to $20.4 billion from $19.5 billion.

Stock movement: Apple shares have risen after three of the company’s past five earnings reports, including both of the last two. The stock has fallen about 19% over the past 12 months, though it’s ahead 9% to start 2023. The Dow Jones Industrial Average
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of which Apple is a component, has fallen about 5% over a 12-month span and is up nearly 2% so far in 2023.

Of the 41 analysts tracked by FactSet, 30 have buy ratings, nine have hold ratings, and two have sell ratings, with an average price target of $168.48.

What else to watch for

While Evercore ISI analyst Amit Daryanani saw some possible “downside” to December-quarter driven by iPhone dynamics, he said that a pullback in Apple’s stock suggests “a miss shouldn’t have a material impact on shares as long as Apple provides a guide that indicates they expect to recover the lost sales as we move through FY23.”

Apple’s supply problems are easing, but that doesn’t mean that the company is out of the woods.

“With supply chain challenges largely normalized, we now believe AAPL is entering a period of slower demand due to macro factors,” Cowen & Co. analyst Krish Sankar wrote in a note to clients. Apple “has been a share gainer in the smartphone and notebook markets over the past year, though our latest field work suggests near-term product builds are seeing reductions vs prior market expectations.”

While Sankar said he thinks that the iPad business “benefited from seasonality and improved component availability,” his supply-chain conversations indicated the potential for “slowing demand” within Macs.

Apple hasn’t been providing traditional guidance alongside its earnings, but Wall Street will nonetheless be looking for clues about the future.

“The tone on the call will be crucial to understand the underlying demand trajectory given the Dec qtr was significantly supply constrained for the higher end Pro models of iPhones,” wrote Bank of America analyst Wamsi Mohan.

His iPhone tracker “shows that availability has normalized and leads us to conclude that demand could be softer than expected in 1H23,” he wrote.

Read: Looking for clues about iPhone supply? Ask AT&T, Verizon and T-Mobile

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