Apple Shares Down Before Earnings

July 8, 2015 by Douglas A. McIntyre

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Source: courtesy of Apple Inc.
Apple Inc. (NASDAQ: AAPL) reports earnings on July 21. Sales of the iPhone 6 and iPhone 6 Plus should remain extraordinary. However, Apple’s shares have underperformed the S&P 500 and Nasdaq over the past month. The huge consumer electronics company’s stock is off 2% over the period, while the major indexes have risen 2%. Some investors think Apple’s numbers may come in below expectations.

The earnings per share forecast for the quarter, according to analyst consensus from Yahoo! Finance, stands at $1.77, compared to $1.28 for the same quarter of last year. The 38% increase cannot shock investors who have watched Apple’s extraordinary earnings rise. Revenue should reach $48.8 billion, up 30% from last year.

Apple faces two challenges. The first is sales of the Apple Watch, which research firm Slice Intelligence reports are growing at their worst level since the product was launched. The smartwatch apparently has not caught consumer imaginations the way that the iPhone did and has continued to do.

The other challenge for Apple is iPhone sales in China. Apple’s management already has said the future of iPhone sales rest on the People’s Republic. In the most recent quarter, Greater China sales were $16.8 billion of Apple’s worldwide total of $58 billion. However, sales there rose 71% year over year. Sales in the Americas were $21.3 billion but rose only 19%. The math regarding Apple’s future is simple.

Expectations drive Apple’s shares more than for most companies. Strong iPhone sales counts are the Holy Grail for Wall Street. Lesser products like the iPad and Mac hardly matter. The Apple Watch only has an important place because Apple has not released a completely new product in years.

Investors can forgive Apple for a miss on Apple Watch sales. But for the iPhone, there will be no forgiveness. The hangover from any bad numbers for the quarter about to be announced will last at least until the next quarter, with investors wondering why the numbers were not much better.

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