Apple Q4 Preview: Holiday Guidance In Focus

by Trefis Team
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Apple (NASDAQ:AAPL) is expected to publish its fiscal Q4 results on Thursday, November 2, reporting on a transitional quarter for the company’s flagship iPhone product line. While we expect sales to be driven primarily by the iPhone 7 and prior models, the new iPhone 8 – which went on sale towards the end of the quarter – could also drive shipments to an extent. Apple has guided for revenues of between $49 billion and $52 billion for the quarter, with gross margins of between 37.5% and 38%. While we don’t expect to see any significant surprises over Q4, we will be closely watching Apple’s financial guidance for the holiday quarter to gauge its expectations for the iPhone 8 and $1,000 iPhone X, which is expected to hit stores in early November.

We have a $164 price estimate for Apple, which is roughly in line with the current market price.

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While both the iPhone 8 and iPhone X are compelling devices, we believe that Apple could be in a tricky situation over the holiday quarter, as there have been reports that the iPhone 8 is only seeing modest demand given its higher starting price, dated design and the lack of attractive carrier promotions. Moreover, the iPhone X is reportedly facing production issues, which could limit supply over the holiday season. The device’s TrueDepth camera is reportedly responsible for the holdup, with Apple’s contract manufacturer only able to deliver 400k units of the device per week. While we still expect iPhone shipments to see healthy year-over-year growth, Apple might have to bank on older devices to drive sales. Gross margins will also be a key factor to watch, given that both the iPhone 8 and X are fairly expensive to build. For instance, components on the iPhone X could cost Apple between $413 to $581, according to various reports, almost twice as much as typical iPhones, implying that percentage margins might actually be lower than older devices. Moreover, rising semiconductor prices (DRAM, NAND) could also impact margins.  For perspective during the 2016 holidays (Q1’FY’17), Apple reported gross margins of 38.5%, on revenues of $78.35 billion.

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