Missing Facebook and Snapchat apps hardly prove the Apple Watch is a dud

21 Jul 2015 | Author: | No comments yet »

Apple Earnings: What to Watch.

Apple Inc. is scheduled to report results for its fiscal third quarter ended June 27 after the market closes on Tuesday. Apple chief executive Tim Cook, right, takes a photo with an Apple employee during the launch and sale of the new iPhone 6 at an Apple store in Palo Alto, Calif., in 2014. (Tony Avelar/The Associated Press) Analysts expect another powerhouse performance from the California tech giant when it reports quarterly financial results Tuesday.

As usual iPhone sales will be the driver for the quarter and this will be the first time Apple provides results for the Watch even if management isn’t willing to break out details. Wall Street analysts estimate Apple will report a hefty $10.3 billion in profit after selling $49 billion worth of iPhones, iPads, Mac computers and other products during the April-June quarter. Techpinions analyst Ben Bajarin joined forces with Apple Watch research platform Wristly to survey Apple Watch owners and found that 97 percent are satisfied with the watch, which is higher than the percentage of original iPad and iPhone buyers who were happy after those respective launches. Thought-leaders from the biggest brands and most disruptive companies will share winning growth strategies on the most pressing challenges marketing leaders face today.

At my estimate of $50.4 billion Apple would generate its highest revenue growth rate (34.6%) since the March 2012 quarter (58.9%) and this is with significant currency headwinds. Apple has said it won’t release sales figures for the new Apple Watch, though some analysts believe demand has fallen since Apple introduced the wearable gadget three months ago. But it almost doesn’t matter: As in other recent quarters, Apple will reap its biggest rewards from its smartphones, especially the new, big-screen iPhone 6 and 6 Plus models introduced last fall.

—ALL ABOUT IPHONE: The iPhone accounted for nearly 70% of Apple’s revenue in the previous quarter and is the company’s most profitable hardware product. As Apple third quarters go, this one promises to be an especially strong one, because the iPhone 6 wasn’t supposed to be selling so strongly this late into its life cycle. While design and quality satisfaction rates are high, performance and battery only scored a 28 percent satisfaction rating, and ease of use clocked in at 43 percent (though women were more pleased with ease of use than men). Some in mobile circles have even raised the possibility that Apple would postpone the arrival of its next phones — presumably the iPhone 6s and 6s Plus — so as not to curtail strong sales of the current models.

If you assume that the Watch’s average selling price (ASP) is $550 each million unit swing adds or subtracts $550 million in revenue and $0.02 in EPS if you assume a 35% gross margin. Some consumers were drawn to Android devices in recent years because they had bigger screens, but Apple’s decision to increase the iPhone’s screen size is persuading Android owners to defect, said Ryan Reith, who tracks smartphone sales for the research firm IDC. Given that the people who writing about the watch in the press and on web forums aren’t exactly mainstream consumers, the spate of critical opinions in recent weeks might not be a great barometer of how the average buyer feels about the Apple Watch. Apple likely sold about 47 million iPhones during the most recent quarter, or 34 percent more than a year earlier, according to analysts polled by FactSet.

This would be an 18% quarter to quarter decline from March sales of 61.2 million units and compares to the past two years declines of 17% (iPhone 5) and 19% (iPhone 5c & 5s). While Apple doesn’t break out the numbers, Canaccord Genuity analyst Michael Walkley estimates that during the first three months of 2015, Apple reaped 92 percent of the $16.6 billion in operating profit generated from smartphones by companies around the world. It has not generated the type of frantic excitement from consumers on par with the iPad or iPhone, leading to speculation that the product is off to a disappointing start. Katy Huberty at Morgan Stanley is using 50 million in her model with upside from her Alpha Wise tracker, Ming-Chi Kuo from KGI is forecasting 54.2 million and Steve Milunovich from UBS is at 51 million (which includes 1 million channel fill). Microsoft, meanwhile, is cutting 7,600 jobs and writing down the value of its Nokia phone division by $7.6 billion, essentially acknowledging that its effort to build a business selling Windows smartphones had failed.

More from WSJ.D: And make sure to visit WSJ.D for all of our news, personal tech coverage, analysis and more, and add our XML feed to your favorite reader. While the iPhone’s margin is helped by moving along the experience curve and lower component costs since it will be a lower percentage of revenue this limits its benefit. Instead, Apple will lump revenue from the watch into its “Other Products” category, which includes the iPod media player, Apple TV streaming device and Beats headphones.

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