Apple Q1 Preview: How Are The New iPhones Faring?

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Apple (NASDAQ:AAPL) will publish its fiscal Q1 results on February 1, reporting on an eventful quarter for its iPhone business, which saw the launch of the flagship iPhone X and the first full quarter of sales of the iPhone 8 smartphone. Apple projects that quarterly sales will touch all-time highs of between $84 billion and $87 billion for the quarter, marking growth of at least 7% year-over-year, driven by a larger lineup of devices. The key factors we will be tracking in the earnings release are Apple’s iPhone average selling prices (ASPs), gross margins and its financial guidance for the second quarter. We have also created a Dashboard analysis where you can change the company’s expected revenue, gross margin, OpEx and tax rate figures to gauge how it will impact expected EPS for the quarter.

See Our Complete Analysis For Apple Here

We have a $180 price estimate for Apple, which is roughly in line with the current market price.

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iPhone X And 8 Could Drive ASPs Higher

iPhone ASPs could see strong growth on a sequential and year-over-year basis, considering Apple’s move to increase prices on its latest flagship devices. The iPhone X starts at $1,000, while the iPhone 8 is priced at $700 onwards, marking an increase of $50 over the launch price of last year’s iPhone 7. For perspective, Apple’s iPhone ASPs for Q4 FY’17 stood at $618. However, this ASP growth could be partially offset by Apple’s decision to offer three legacy models, namely the iPhone 7, 6S and SE, all of which received price cuts after the launch of the new devices. Based on device activation data ahead of the 2017 Christmas holidays, it appears that Apple’s older and lower-priced iPhones could actually be eclipsing sales of newer models like the iPhone X and 8.

Margins In Focus As iPhone Bill Of Materials Costs Rise

Margins will also be another key factor to watch. Apple has had to equip its recent devices with more niche and expensive technologies in order to differentiate itself (3D-Touch, Taptic engines, dual cameras). With the iPhone X, the company is using OLED displays (a first on an iPhone) and depth-sensing cameras, and it’s possible that this will drive up the bill of materials cost further. Moreover, assembling the new device is also likely to be more expensive, considering that the iPhone X features Apple’s first new industrial design in 3 years. Apple for its part, has projected with gross margins of between 38% and 38.5% for the quarter, marking a small sequential increase.

Q2 FY’18 Financial Guidance

We will also be closely watching Apple’s guidance for Q2 FY’18. While the second quarter is seasonally weaker for Apple, there has been speculation that iPhone X shipments could slow down meaningfully after the initial wave of demand from early-adopters and holiday shoppers dies down, impacting Apple’s performance over the quarter. There have been reports that Apple is scaling back production of the device and it’s possible that we could get an indicator of demand for the device from Apple’s guidance figures for the quarter.

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