Apple recently released its earnings results showing an increase in iPhone revenues from the previous year, but still coming short of analysts’ predicted forecast. This article will discuss the factors behind Apple’s shortfall against forecast and the implications for stockholders.
Whether or not Apple’s results were a cause for alarm, we’ll also explore the future opportunities this presents for the tech giant.
Apple earnings see iPhone revenues up, still short of forecast
On July 29, 2020, Apple Inc. released their earnings results for the fiscal 3rd quarter of 2020. The results exceeded analysts’ expectations in many aspects but fell short compared to the company’s forecast. During this quarterly report, Apple saw a surge in iPhone revenues mainly due to the pandemic and increase in sales of model support products.
The quarterly report showed that Apple sold approximately 40.5 million iPhones during this period, up from 37.3 million units sold during Q3 of 2019 and well over the 19 million units sold during its COVID-19-impacted Q2 financials. In addition, revenues from iPhones came out to be around $25 billion, much higher than the $21 billion forecasted by analysts due to strong sales since people stayed home and turned to technology for solace and entertainment. However, despite beating analysts forecasts, it was still short compared to Apple’s forecast of $26 billion projected at the beginning of Q3 2020 as demand began to slow down towards the end of the quarter due to existing lockdowns being eased domestically and abroad.
Overall, while Apple beat many forecasts with their quarterly reporting, they have yet to deliver on its projections, which have made investors cautiously optimistic about upcoming earnings reports from the tech giant going forward into 2021.
Overview of Forecasted Earnings
Apple recently reported its earnings results for the last quarter and saw an increase in iPhone revenues as predicted. However, the revenues were still lower than what was forecasted.
Let’s look at the overview of the forecasted earnings and how the actual results compared for the last quarter.
Analyzing Apple’s Earnings Results Compared to Forecast
Apple released its fiscal second quarter earnings results for the period ended March 28, 2020, and the company delivered slightly better-than-expected iPhone revenues but fell short of its forecast. Revenue was up 6.2% year-over-year to $58.3 billion, compared to the consensus Wall Street estimate of $57 billion. iPhone revenue rose 7%, driven mainly by strong demand in China and gains in market share, while services revenue climbed 11%. Despite this revenue growth, Apple still missed its forecast due to lacklustre iPad and Mac sales as they saw a decrease in demand due to stay-at-home orders during the COVID-19 pandemic.
Although Apple’s Q2 earnings fell short of expectations, it is important to note that Apple is still doing well overall despite the difficult economic climate caused by the pandemic. Compare this with other companies who may have earned more than their forecast previously but now are seeing deep losses due to economic uncertainty or losses from their supply chain issues during the crisis. Analysing these earnings reports gives investors insight into how companies respond in difficult markets and allows them to plan accordingly for future investments.
Impact of iPhone Revenues
Analysts and investors were not expecting strong earnings results from Apple after iPhone sales were down compared to last year’s quarter revenues. Though there was an increase in iPhone revenues this quarter, it was still short of the forecast estimates.
We will take a look at how this unexpected short fall impacted Apple’s earnings results.
Examining iPhone Revenues and their Impact on Apple’s Earnings
Apple reported its earnings for the holiday quarter, showing an increase in iPhone revenues but still falling short of analysts’ forecasts. The popularity of the iPhone X and other new models helped Apple generate strong sales, but they weren’t enough to make up for lower demand elsewhere in the company.
It is important to analyse both revenue and profit margins to understand the impact of iPhone revenues on Apple’s overall earnings results. Apple’s gross margins decreased 6 percent year-over-year due to higher product costs and a mix shift towards its high priced iPhones which generally compete at lower margin levels than its cheaper devices. In addition, there was an 8 percent rise in Research & Development costs associated with such projects as augmented reality and artificial intelligence.
The lack of profitability from the iPhones in Apple’s earnings report is partially attributable to higher production costs and lowered average selling prices (ASPs). For 48 percent of revenue this holiday quarter, iPhones constituted one-third fewer units than the prior year’s quarter but saw a 3 percent price increase per unit sold due to emerging markets like China preferring more expensive models.
These impacts demonstrate that although iPhone revenues rose modestly, they could not fully offset reduced demand for other products such as iPads and Macs which saw greatly declining numbers over the last year— amounting to a total disappointing quarter for Apple’s bottom line.
Factors Contributing to Shortfall
Apple’s recently released earnings results show that iPhone revenues were up, but still fell short of the forecast. Several factors have contributed to the shortfall, and it is important to understand why Apple’s earnings failed to meet the forecast.
In this article, we will look at the various factors at play.
Analysing Factors Contributing to the Shortfall of Apple’s Earnings
Apple has previously faced declining earnings and a sharp drop in iPhone sales for several consecutive quarters. While the most recent quarter saw somewhat of a rebound with revenues up, the results still fell short of the forecast. This article will analyse the various factors that may have contributed to this shortfall in Apple’s earnings results and suggest potential solutions to help Apple reach its long-term growth goal.
Some explanations for Apple’s recent quarterly earnings were lower than expected can be found within their product line. Both iPhone 8 and 8 Plus sales were comparatively lower than expected and many speculate this was due to higher prices and competition from Android competitors presenting more options at lower prices. Another factor could be that customers are delaying purchases until an iPhone X becomes available later this year – which could account for a large portion of what would normally have been early quarter sales for Apple.
Outside events may also explain the shortfall in earnings, such as geopolitical uncertainty leading to weaker demand from international markets. Brexit, for example, is seen by some analysts to have harmed markets all across Europe – where Apple has a large customer base – while other analysts believe global political uncertainty resulted in overall decreased global spending during that quarter.
To achieve sustainable growth in the future, it is important for Apple to address all potentially relevant external and internal issues. For example, within their product line up they need to make sure they keep prices competitive against significantly cheaper Android handsets while still providing unique features which will draw customers towards their products instead; they also need take into account customer purchasing trends by timing their releases accordingly so as not to miss out on early quarter sales (such as introducing a new model just after or before major holidays). Externally they need to make sure customers remain confident about making investments by ensuring political stability globally so that international markets continue buying their products without hesitation or fear of repercussions from any political upheaval or economic turbulence that may arise within certain countries or regions.