Apple Earnings: Is iPhone 14 Recession Proof?

New York
CNN business

Apple is about to offer its first hints about iPhone 14 sales after weeks of rumors that demand for its latest range of phones might be weaker than initially expected.

On Thursday afternoon, Apple will report its September quarter earnings results, including the nearly two-week period of sales of the iPhone 14 range. Although the timeframe is limited, Apple’s results and comments from the current holiday quarter may provide insight into how the company and its core products are faring as the economic downturn has hit the results of other declining tech companies.

Shares of Apple ( AAPL ) fell briefly last month after the company announced it was abandoning plans to ramp up production of its iPhone 14 lineup in the second half of this year due to lower-than-expected demand. (Apple ( AAPL ) did not immediately respond to a request for comment.)

Analysts predict Apple It posted revenue of $88.9 billion, up 6% year-over-year, a sharp slowdown from 29% sales growth in the year-ago quarter. It is expected to post earnings of nearly $20.4 billion, essentially flat from a year earlier.

In recent years, Apple’s iPhone releases have lacked game-changing new features and significant hardware upgrades, prompting many users to upgrade whether they need a new phone or not. But this year, with consumers grappling with high inflation and fears of a possible recession, convincing them to pay $799 or more for a new device may be even more difficult. The strength of the US dollar could make the devices more expensive for non-US consumers, which is an important part of Apple’s business.

“The consumer electronics industry is entering a period of slow growth,” Dan Morgan, senior portfolio manager at Synovus Trust Company, said in a note to investors.

However, analysts say there is reason for optimism. The higher-cost iPhone 14 Pro model appears to be the most popular of the new models, which is expected to boost iPhone average selling prices, according to Angelo Zino, senior equity analyst at CFRA research.

Apple no longer breaks down how many iPhones it sells. Instead, it reports the total revenue generated by the product segment, making it more difficult to analyze demand in detail.

Apple watchers are also likely to pay close attention to the performance of the company’s Services segment, which includes paid subscriptions and is seen as an increasingly important unit of the business designed to offset slowing growth in parts of its hardware business.

Brian White, an analyst at Monness, Crespi, Hardt, said in an investor note on Friday that he expects Services revenue growth to slow slightly to 10% year-over-year, down from 13% in the year-ago quarter.

Changing consumer behavior may cause the Services to slow down. In an earnings call this week at Google’s parent company Alphabet, Ruth Porat said Google Play’s revenue fell slightly due to a drop in spending by users on the platform, and in particular a decline in gaming engagement at the start of the pandemic.

Apple raised the prices of its music and TV streaming services earlier this week, which could help boost sales going forward.