Apple (AAPL) Q2 Earnings: Key Aspects To Watch Out For

Apple’s (NASDAQ:AAPL) second-quarter fiscal 2018 results are scheduled to be released on May 1.

The quarter witnessed investors’ anxiety over lackluster sales of the premium iPhone X, leading to decline in sales estimates. Lack of demand compelled Apple to lower shipment target.

iPhone in the Spotlight

iPhone, since its launch in 2007, has been the mainstay of the tech giant’s revenues. In the first quarter, iPhone revenues increased 13% from the year-ago quarter to $61.58 billion.

However, lower-than-expected sales of iPhone X have prompted analysts to slash sales estimates for the product. Goldman Sachs (NYSE:GS), in its Mar 27 note, announced trimming of iPhone sales expectations by a whopping 1.7 million units to 53 million for the March quarter. Jun Zhang of Rosenblatt Securities lowered his estimate for total iPhone shipments in the March quarter by 2 million units to 50 million units.

Nonetheless, Apple’s focus on “aggressive pricing” that resulted in a higher average selling price (ASP) from premium models — iPhone X, iPhone 8 and iPhone 8 Plus — is likely to boost the top line, despite lower shipments. This is evident from the fact that expected growth of revenues from iPhone is way higher than growth of its shipments for the soon-to-be-reported quarter.

Notably, for the second quarter, the Zacks Consensus Estimate for total iPhone units sold is pegged at 52.94 million, up almost 4% from the actual figure reported in second-quarter 2017.

The Zacks Consensus Estimate for revenues from iPhone and related products and services is $39.2 billion, up 18% from the actual figure in the year-ago quarter.

However, the expensive price tag might prove an impediment in countries like China, which remains an important market for Apple, given the growing number of middle-class customers. Also, intensifying competition from regional players, who are offering feature-rich smartphones at a much cheaper price, remains a major headwind.

iPad and Mac Losing Steam

Apple’s iPad business has been sluggish for quite some time. However, with the launch of a low cost iPad in the second quarter of 2017, the company witnessed an uptick in iPad sales.

Apple sold 13.2 million iPads in the first quarter, up 1% year over year, while revenues of $5.7 billion increased 6%.

For the second quarter, the Zacks Consensus Estimate for revenues from iPad business is pegged at roughly $3.98 billion, up 2% year over year. The Zacks Consensus Estimate for total iPad units sold is around 9 million, up 1% year over year.

However, Mac sales don’t hold promise. For the second quarter, the Zacks Consensus Estimate for revenues from Mac is pegged at $5.71 billion, down 2.2% year over year. The Zacks Consensus Estimate for total Mac units sold is 4.2 million, down 1% year over year.

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Will Diversification Yield Results?

Apple’s focus on developing innovative products in order to generate new revenue streams is a key growth driver. Fast growing Services and wearables (mainly Watch) segments are emerging as big growth catalysts.

Notably, Apple’s Other Product segment, which includes Apple TV, Apple Watch, Beats headphones, iPod touch and other accessories witnessed a 36% increase year over year in the last reported quarter, the highest among all its segments. In fact, the segment recorded a new all-time high with revenues of more than $5 billion for the first time in a quarter.

Apple’s Services segment, which includes revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, licensing and other services, continues to grow rapidly. At the end of the first quarter, the Services segment had more than 240 million subscribers. Revenues surged 18% year over year to nearly $8.5 billion.

For the first quarter, the Zacks Consensus Estimate for revenues from iTunes, Software and Services is $8.33 billion, up 18.3% year over year.