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Apple earnings preview: service revenue may see faster growth


Apple will report its fiscal fourth-quarter earnings after the US markets close on 2 November, which will be the morning of 3 November in the APAC time zone. The tech giant’s shares slid nearly 14% from the all-time high when it topped a three-trillion market cap in July. While softened demand in China can have a major impact on Apple’s September-quarter performance, its service revenue is expected to accelerate further. Below are the key aspects that investors need to know ahead of its earnings release.  

Q3 FY23 review

In the June quarter, Apple beat both earnings per share and revenue expectations as sales in greater China, including Hong Kong and Taiwan, jumped 8% from a year earlier. However, Apple’s overall year-on-year revenue growth declined for the third consecutive quarter, down 1% due to a sharp decline in iPad sales and weakened demand in America. The iPhone sales, which accounted for roughly 50% of the overall revenue, declined by 2.45% year-on-year. iPad sales slowed, in particular, down about 20% year over year, thanks to fierce competition. But its service revenue, which comprises Apple Store, Licensing, AppleCare, iCloud, etc., accelerated in the past four quarters, up 8.2% year on year. CFO Luca Maestri expected Apple’s revenue to continue the decline in the September quarter, but in a condition that the macroeconomic outlook stays the same.  

Business growing focus – iPhone 15 sales, service revenue  

Unlike other big tech companies, Apple has barely talked about its AI development. Instead, hardware sales remained the primary income for the company. China’s iPhone 15 sales are expected to slow down due to fierce competition from Huawei and weak consumer demand, reflecting China’s sluggish economic recovery. Sales of iPhone 15 models, fell 4.5% in the first 17 days after its release, compared with iPhone 14. The Pro Max and Pro were down 14% and 11%, respectively. Recently, Chinese e-commerce, such as JD.com, Pinduoduo, and Taobao, are offering deep discounts on iPhone 15, weeks ahead of China’s Singles Day promotion. In September, China was reportedly banning the use of iPhones by government staffers on national security concerns, which caused a sharp decline in Apple’s stocks. Geopolitical tension may spark patriotic consumer behaviour, shifting sales to local handset brands, typically Huawei. Other hardware, such as iPad and Mac, are expected to slow down further, which may lead the product sales to extend the year-on-year decline. Despite all negatives, CFO Luca Maestri expected overall iPhone sales to “get a bit better” in the September quarter.

On the bright side, Apple TV, AppleCare, Apple Payment, and iCloud all hit record revenue in the June quarter, signalling strong momentum in the segment. The service segment became a main part of the sales contributor, accounting for 26% of the overall revenue, and is expected to accelerate further in the September quarter.

Q4 FY23 Forecast by Bloomberg

Earnings per share: $1.39, +8% year on year

Revenue: $89.31 billion, -1% year on year

iPhone Sales: $43,603.22, +2% year on year

Service Revenue: $21.38 billion, +11% year on year

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