Apple earnings: Are cheaper iPhones on the horizon?
Apple is expected to report on Tuesday fiscal third-quarter earnings and revenue greater than the year-earlier period amid growing sales from services like iTunes and the App Store.
The iPhone maker’s services revenue soared 31% to $9.19 billion in its second quarter, which ended March 31, easily beating Wall Street’s expectations. While that pace is likely unsustainable, Apple services will again show robust growth, according to analysts at CFRA.
“Services growth … is the single most important data point for investors,” CFRA analyst Angelo Zino wrote in a note to clients.
CFRA forecast services growth of 28% in the most recent quarter, largely thanks to the App Store, iCloud and Apple Music.
Investors are also closely watching Apple’s financial guidance for clues to its product plans and growth expectations.
Analysts see Apple introducing at least three iPhones in the fall, including devices that are priced more aggressively than the range-topping iPhone X. Zino believes a 6.1-inch LCD model will start at $699 to better compete in the competitive China market. KGI analyst Ming-Chi Kuo predicted a starting price as low as $550, according to CNET.
Zino also said the second-generation iPhone X will likely get a price cut to around $899, down from the current starting price of $999.
Despite softer iPhone sales than expected in the second quarter, the iPhone X continued to boost revenue from sales of Apple’s iconic smartphone lineup. Zino said Apple should be able to maintain elevated iPhone selling prices with a projected average of $736 in fiscal 2018. Stronger pricing will help offset a “no-growth environment” for the iPhone through fiscal 2020, according to CFRA’s forecast.
“[Apple] has been able to successfully increase prices for its iPhones as it looks to push more content to consumers and an overall better experience,” Zino wrote, adding that the iPhone business will be Apple’s “main driver of free cash flow generation over the next three years.”
CFRA has estimated iPhone shipments of 42 million devices in the third quarter.
Apple is expected to report adjusted earnings of $2.18 per share, according to Thomson Reuters. The company earned $1.67 per share in the same period last year. Revenue is estimated to reach $52.34 billion, up from $45.4 billion.