Slowing Pace of Sales Decline as Apple Boosted by iPhone 7 Demand

The pace of a sales slump for the world’s most valuable company, Apple Inc. was helped to slow down by robust early demand for the iPhone 7, analysts predicted, as the company’s fourth-quarter results were bolstered by this trend.

According to Wall Street estimates, Apple likely sold 45 million units of all types of iPhones in the most-recent fiscal quarter ending Sept. 24, after releasing a new version of its bestselling device in September. Forecasts indicate that smaller than the 15 percent decline in the preceding period, revenue probably slipped for a third straight quarter by 9 percent.

Apple didn’t publish first-weekend sales data after the iPhone 7’s Sept. 16 release unlike previous smartphone rollouts. That means the first major clues on how consumers responded to the new device would only be provided by the company’s fiscal fourth-quarter results, due after the market closes on Tuesday.

The company got a week longer than usual to market the device as Apple benefited from an earlier product launch this time. Despite that however, smartphone saturation in many parts of the world and rising competition from lower priced alternatives, especially in China is holding back Apple’s growth. Analysts say that a lid on iPhone supply is also being put by shortfalls in components.

Piper Jaffray analyst Gene Munster wrote in a note to investors on Sunday that Apple will likely guide that “iPhone 7 is off to a good start, but supply remains constrained.” He rates Apple shares overweight, or buy.

Ahead of a more significant upgrade in 2017 to coincide with the 10-year anniversary of the first iPhone, the iPhone 7 is a stopgap for other analysts.

“IPhone 7 is proving an effective ‘bridge’ to the iPhone 10 super-cycle in 2017, where a powder keg of a dramatically aging installed base lurks just under the surface,” Cowen & Co. analyst Tim Arcuri said in a note to clients last week.

The ending of the 2016 fiscal year would bring a sigh of relief for Chief Executive Officer Tim Cook. As global smartphone demand ebbed, for the first time in 25 years, the company likely endured its first annual revenue decline. Repercussions for Apple shares, which declined slightly over the course of the year, were limited helped by share buybacks and a beefed-up dividend. The S&P 500 climbed 12 percent in the same period.

China, where Apple’s sales decline has been more pronounced, would be of particular focus for investors. Local rivals offering cheaper phones with similar specifications are offering competition to Apple in Asia’s largest economy. According to an estimate from research firm JL Warren Capital LLC, compared with a year earlier, there were 32 percent fewer iPhones activated in China in Apple’s fiscal fourth quarter.

According to Goldman Sachs analyst Simona Jankowski, fourth-quarter sales would likely to be boosted as the iPhone 7 was released a week earlier than prior models. She said that demand for the device, which has been boosted by the problems endured by competitor Samsung Electronics Co. Ltd., has increased to such an extent that Apple has struggled to meet the demand. In the crucial holiday quarter, that could help Apple’s sales.

(Adapted from Bloomberg)

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