Apple Q3 2019 earnings preview: A focus on 5G iPhones

Apple Q3 2019 earnings preview: A focus on 5G iPhones

AAPL) is scheduled to report its Q3 2019 earnings after the bell on Tuesday, and it could be a mixed bag for the tech giant. Here’s what analysts are expecting, as compiled by Bloomberg:

iPhone and services are king

Analysts will watch iPhone sales revenue, as well as revenue generated by the services division. CEO Tim Cook and company have stopped listing the number of iPhone units the tech giant sells, so revenue is the best way for investors to understand how the business’s most important product is doing. You can also expect a focus on the company’s future and its efforts in developing 5G-capable iPhones.

Apple CEO Tim Cook speaks at the Apple Worldwide Developers Conference in San Jose, Calif., Monday, June 3, 2019. (AP Photo/Jeff Chiu)

Revenue in Apple’s services division will also be key to watch. The company has been pivoting to focus on its services, which includes everything from the App Store to Apple Music, iCloud, AppleCare, and the new Apple News+ subscription service.

Q3 will be the first full quarter since the company launched Apple News+ in March, so analysts will get a better understanding of how the service is performing. The services business is seen as the future growth engine for Apple, as global iPhone sales continue to plateau.

Apple CEO Tim Cook introduces Apple tv+ during a launch event at Apple headquarters on March 25, 2019, in Cupertino, California. (Photo by NOAH BERGER / AFP) (Photo credit should read NOAH BERGER/AFP/Getty Images)

Later this fall, Apple will launch its long-awaited Apple TV+ streaming service. The offering, which will compete directly with the likes of Netflix (NFLX), Hulu, and Disney’s (DIS) upcoming streaming service, will be a critical component of the services business’s growth strategy.

China will also be a major focus for investors, as growth there has been hard to come by for Apple. Morgan Stanley’s Katy Huberty and Erik Woodring, however, are calling for strong performance in the region for Apple in Q3.

“According to data compiled by push-messaging service provider Jiguang, iPhone share of the China smartphone installed base increases Y/Y for the 6th consecutive month in June, growing 96bps Y/Y to 20%, a slight improvement from May’s 51 bps Y/Y installed base gains,” the two wrote in a recent note.

The pair also point to Chinese government smartphone shipment data, which shows a 0.9% Y/Y decline in Q3 versus a steeper decline of 46.3% Y/Y in the prior quarter.

But according to Bloomberg’s MODL consensus, iPhone sales are expected to fall 10.3% in Q3, pushed lower by the ongoing trade war between the U.S. and China.

The same consensus, however, also points to an increase in sales of iPads, Macs, wearables like the AirPods and Apple Watch, and services by as much as 14.4%. Don’t forget, Apple recently revamped its iPad and Mac lineups, and released a new version of the seemingly ubiquitous AirPods.

Hints of the future

after Apple announced that it is acquiring Intel’s (INTC) smartphone modem business to help ensure the company can produce its own 5G chips in-house, and cut out Qualcomm (QCOM).

Huberty and Woodring both see the 5G iPhone, which is expected to hit the market in 2020, as a potential difference-maker for Apple’s smartphone sales, as users’ current phones age out.

“As a result, we see near-term downside to iPhone shipments as more limited than in the past and the potential for an upgrade cycle, like 5G, to have a more meaningful impact to iPhone shipment growth as compared to iPhone, which was launched at a time when replacement cycles were lengthening due to the shift away from handset subsidies.”

Raymond James analysts Chris Caso and Melissa Fairbanks wrote in a research note that Apple will likely offer 5G connectivity across the entire 2020 iPhone line. If Apple continues its current strategy of offering three pricing tiers for the 2020 iPhone, Caso and Fairbanks say Apple’s entry-level handset could serve as a “very compelling upgrade.”

Apple’s line of i Phones. (Image: AP Photo/Marcio Jose Sanchez, File)

fined Facebook $5 billion over privacy violations relating to the Cambridge Analytica Scandal; then hit it again with an antitrust investigation.

and others like it, should be broken up.” data-reactid=”71″>Apple, one of the world’s most valuable companies, has been a frequent target of Big Tech opponents including the likes of Senator Elizabeth Warren (D-MA), who says that the company, and others like it, should be broken up.

vocal in its opposition to Apple’s App Store fees.” data-reactid=”72″>The biggest criticism against Apple is that the company sells its own apps in its App Store, which compete directly with third-party apps listed in the storefront. There’s also the matter of the 30% cut Apple takes from the sale of every app purchase from the App Store. Spotify has been particularly vocal in its opposition to Apple’s App Store fees.

Cook could also address President Donald Trump’s announcement that the upcoming Mac Pro won’t be given a waiver protecting it from 25% tariffs imposed on Chinese-made goods entering the U.S. Apple is unlikely to bring production of the Pro back to the U.S., but it will be interesting to see if Cook has any comments on Trump’s call to produce the Pro here.

We’ll find out more when Apple announces its earnings on Tuesday.

@DanielHowley.” data-reactid=”81″>Email Daniel Howley at dhowley@yahoofinance.com; follow him on Twitter at @DanielHowley.

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