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Apple Tipped To Deliver $25B Quarterly Profit But Pay Meagre Tax In OZ

Apple Tipped To Deliver $25B Quarterly Profit But Pay Meagre Tax In OZ

Analysts expect growth-just nothing on par with last year’s bonanza however they are tipped to deliver profits of around $18.1 billion of which very little will end up in the coffers of the Australian Treasury. 

Apple’s business is increasingly tied to one product: the iPhone. Sales of the iPad have slowed, and newer products such as the Apple Watch haven’t become mainstream hits yet. Dialog Semiconductor, an Apple supplier, reported lacklustre earnings and gave a disappointing fourth-quarter forecast on Monday, which RBC analyst Amit Daryanani said has a “negative implication” for iPhone sales. Gene Munster, an analyst with Piper Jaffray, wrote in a research note last week that iPhone sales for the holiday quarter are the “biggest investor concern” facing Apple.

Globally Apple is banking on China a market they have only recently tapped to deliver growth. 

 Apple sales are predicted to be $US77 billion according to data compiled by Bloomberg. That would work out to sales growth of 3.4 per cent, which is a far cry from the 30 per cent Apple put up last holiday season.

During the critical October to December period, Apple generates more sales and profit than any other time of the year which is why big consumer electronics retailers love the US brand. 

The upcoming forecast will be closely watched because Apple is facing questions about whether the latest iPhones can match the record-setting pace of last year’s models, which included the long-overdue addition of bigger screens. Investors’ doubts about growth have sent the stock down 12 per cent since the last earnings report.

When Apple report tomorrow morning we will be looking for details on the uptake of the iPhone 6S and the new iPhone Upgrade Program, which are crucial to Apple’s 2.61%’s long-term margin expansion. 

There are some specific trends that we will be watching for as well.

 Apple has been honing its iPhone strategy to improve gross margins, as volume growth is expected to moderate going forward. 

For instance, the company maintained its storage mix strategy (16/64/128 GB) and it’s likely that more customers will buy the higher-tier models this time around, given the higher-resolution cameras and video recording capabilities of the new devices. The company also launched a new equipment instalment scheme for the iPhone, the iPhone Upgrade program. 

The program helps to shorten the upgrade cycle for Apple’s most profitable product, by incentivizing customers to trade in their devices annually, while also bundling the high-margin Apple Care protection plan. (related: How The iPhone Upgrade Program Impacts Apple’s Financials) While it’s obviously early to gauge the success of the program, we be looking for specific commentary from management or proof points on how customers are taking to the program.

Apple Watch Sales Should Improve On Better Supply, Software Overhaul

While the Apple Watch is unlikely to make a big difference in terms of Apple’s broader financials, we are looking at the device’s performance as a data point to gauge Apple’s ability to produce hit new products and keep its innovation engine running. 

We estimate that sales stood at roughly $1.3 billion in FY’Q3, with shipments of close to 2.9 million. While the initial sales missed expectations, Apple seems to be building momentum around the product and it’s possible that we will see a better performance in FY’Q4 for a couple of reasons. Firstly, Apple was only able to reach supply-demand balance for the device in July, after it remained under-supplied through FY’Q3. Additionally, Watch sales could also be driven by availability at Apple retail stores and mass retailers such as JB Hi Fi. 

Unlike the previous quarter when sales were primarily done online. Finally, Apple also launched new variants of the device last month, while overhauling Watch software (Watch OS2). Although Apple isn’t explicitly breaking out Watch numbers (it includes them in the Other Products segment), we should be able to estimate them based on historical growth numbers. (related: How we estimated Q3 Apple Watch Numbers).