Apple

A closer look at Apple’s iPhone 8, Apple Inc. earnings and Qualcomm

Apple is expected to launch a redesigned and desirable version of the iPhone this fall, and some analysts hope that the sales “supercycle” it spurs could turn Apple into the first public company to be worth $1 trillion .

One question is when the “iPhone 8” or “iPhone Pro” will go on sale.

New iPhones typically go on sale in September, which means that a few days get included in the third-calendar quarter. But some analysts have warned that the iPhone 8 may not start shipping until October or later .

In 2015 , for example, Apple sold 13 million iPhones in the first weekend after the iPhone 6S and Plus were available. Those were counted in the September quarter.

So when Apple reports its earnings on August 1, it will give a huge hint about when the iPhone 8 is going on sale. Apple CEO Steve Jobs and CFO Luca Maestri will provide guidance for third calendar-quarter revenue. If it’s on the high-end, that means Apple’s expecting a few days or more of iPhone 8 sales to be included.

If revenue guidance is on the low-end, that would suggest Apple doesn’t expect the iPhone 8 to be in customer hands before October.

BMO Capital Markets analyst Tim Long lowered his estimates for Apple September quarter guidance in a note distributed to clients on Monday.

“We are lowering our estimates for September quarter guidance … owing to our view that initial shipment volumes of the premium iPhone Pro will be limited,” Long wrote.

“We are lowering our September unit and ASP assumptions slightly to reflect our view of limited volume shipments of the premium next-generation iPhone,” he continued.

BMO forecasts Apple to reveal guidance of $43.5 billion to $45.5 billion next week. It gives Apple a price target of $170 and an “outperform” rating.

While the iPhone 8 launch date will matter for short-term trading, in the long-run, it’s only a blip.



Whether some sales are counted in Apple’s September quarter or its December quarter won’t matter that much. It’s only a week or two of sales on either side of the date, and if the new iPhone launches in October, that still means Apple will report a huge December quarter, which is typically the company’s biggest.

“However, we believe [iPhone Pro] production capacity will ramp steadily, and we are taking our FY2018 [iPhone] unit and average selling price estimates higher,” Long wrote.

iPhone sales, revenue, and gross margin will give investors key insight into Apple’s business.

Next week, tech giant Apple will report its third-quarter financial results. The quarter is taking place more than halfway through Apple’s flagship iPhone cycle and will test Apple’s ability to continue putting up big profits ahead of the smartphone’s annual refresh.

Apple is scheduled to report its third-quarter results on August 1. Here’s what investors should watch when the quarterly update goes live.

iPhone sales

Launched last September, Apple’s flagship iPhone 7 and 7 Plus are no longer the hyped, supply-constrained new iPhone models they were in the weeks after they hit Apple stores. As is usually the case when Apple reports its third fiscal quarter, iPhone sales are set to decline sequentially in Q3 2017. The big question, however, is whether iPhone sales during the quarter will increase on a year-over-year basis.

It’s not certain that Apple will be able to grow its third-quarter iPhone sales on a year-over-year basis. In Apple’s third quarter last year, Apple sold 40.4 million iPhones, down 15% from the third quarter of 2015. However, Apple’s year-over-year iPhone sales have returned to growth since the company launched its iPhone 7 and 7 Plus, suggesting the tech giant can post another quarter of iPhone growth in Q3.

Given that the iPhone accounts for over half of Apple’s revenue and that management guided for a 2.7% to 7.4% year-over-year increase in total revenue, management likely anticipated slight growth in iPhone sales. Investors should look for an iPhone unit sales-growth rate in the low single digits.



Revenue

With a string of quarters last year of declining revenue still fresh in investors’ minds, it would be reaffirming to see Apple report revenue within its guidance range and subsequently extend its recent return to growth. Apple returned to revenue growth in its first quarter of 2017 after reporting three quarters in a row of year-over-year declines. Revenue growth in Q3 would mark Apple’s third quarter in a row of year-over-year revenue growth.

With the midpoint of Apple’s revenue guidance typically proving to be somewhat conservative, investors should look for the company to report third-quarter revenue of $45 billion, toward the high end of its revenue guidance range of $43.5 billion and $45.5 billion. This would represent year-over-year revenue growth of 6.2%, notably higher than the 4.5% year-over-year revenue growth Apple posted in the second quarter of 2017.

Gross profit margin

Another key metric to watch will be Apple’s gross profit margin. Apple’s gross profit margin, or the tech giant’s gross profit as a percentage of revenue, gives investors insight into Apple’s ability to maintain its pricing power and economies of scale. Apple’s fat profit margin, which has hovered between about 38% and 40% in recent years, is critical to the company’s ability to continue raking in profits at current levels.

For Apple’s third quarter, management guided for a gross profit margin between 37.5% and 38.5%. This compares to a gross profit margin of 38% in the year-ago quarter. Investors should look for Apple’s gross profit margin to come in at the high end of this range. If Apple’s profit margin comes in at the low end of guidance — or below guidance — investors should look for an explanation from management for the year-over-year decrease in the metric.



Qualcomm-Apple : In a filing with the US International Trade Commission, the chip giant defends its proposed ban of some Apple iPhones.

Qualcomm is defending itself against critics who say its patent dispute with Apple is really about quashing competition.

Earlier this month Qualcomm filed a complaint with the US International Trade Commission, accusing Apple’s iPhones of infringing six of its mobile patents. As part of the filing, Qualcomm wants the ITC to ban the import of certain iPhones that don’t use Qualcomm chips, as well as ban Apple from selling devices it has already brought into the US.

cThat would include iPhone 7 and 7 Plus models running on AT&T and T-Mobile, as well as certain iPads. Those devices use Intel’s 4G chips, while phones from other carriers like Verizon use Qualcomm’s processors.

Last week, Intel and others critics accused Qualcomm of trying to use the courts to snuff out competition. In a public statement to the ITC, Intel described itself as “Qualcomm’s only remaining competitor” in the mobile chip market. The Computer & Communications Industry Association — a trade group that represents Google, Amazon, Facebook and other tech companies — also urged the ITC to reject Qualcomm’s proposed ban, saying it would harm consumers by enabling anti-competitive behavior.

In response to those comments, Qualcomm said its critics are waging a “coordinated effort aimed at misdirecting” the ITC.

In a filing with the trade regulator Monday, the company argued that its proposed important ban isn’t about competition with Intel. Qualcomm called the mobile chip market “robust” and said “Apple can purchase and utilize any LTE modem it chooses so long as it does not infringe Qualcomm’s asserted patents.”



Instead, Qualcomm said, the import ban is about Apple devices that infringe “technologies relating to the design, structure, and operation of products with envelope tracking technology, voltage shifter circuitry, flashless boot, power management circuitry, enhanced carrier aggregation, and graphics processing units.”

Apple and Qualcomm have been fighting over patents since January, when Apple filed suit against Qualcomm in the US and said the wireless chipmaker didn’t give fair licensing terms for its technology. It wants to pay a lower amount for using Qualcomm technology in its devices.

Qualcomm, the world’s biggest provider of mobile chips, maintains that no modern handset — including the iPhone — would have been possible “without relying upon Qualcomm’s fundamental cellular technologies.” The company derives a significant portion of its revenue from licensing that technology to hundreds of handset manufacturers and others.

Qualcomm declined to comment beyond the filing. Apple didn’t immediately respond to a request for comment.

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