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Will Apple (AAPL) Earnings Upset the FAANG Rebound?

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Tech stocks have been reeling under pressure for quite some time now. Facebook, Inc.’s data misuse scandal coupled with fears of a regulatory clampdown has been taking a toll on tech stocks over the last couple of months. That said, a robust earnings season, particularly driven by strong quarterly numbers by the FAANG stocks, is finally seeing tech stocks rebounding. However, Apple Inc. (AAPL - Free Report) remains the only FAANG stock that is yet to report its quarterly numbers.

The big question is if Apple will upset the FAANG rebound given Morgan Stanley’s (MS) recent projection that sales of iPhones will slow down in the June quarter. Moreover, Taiwan Semiconductor Manufacturing Company Ltd. (TSM), the world’s largest contract chipmaker, recently said came up with a weak financial outlook, adding to the woes of Apple. Understandably, challenges are aplenty for Apple and it needs to be seen how the company guides for the next quarter amid slowing demand for iPhone.

Weak iPhone Sales Might Hit Apple

After suffering for almost one-and-half months, FAANG stocks finally started rebounding on robust earnings results. Shares of Amazon.com, Inc (AMZN - Free Report) ) and Netflix, Inc. (NFLX - Free Report) have increased 7.3% and 2.2%, respectively, in the past five days. Shares of Facebook have increased 7.7% in the past five days, while Alphabet Inc. (GOOGL - Free Report) has declined 0.4%. However, shares of Apple have declined 2.8% in the past one month.

As Apple gears up to report second-quarter fiscal 2018 results, investors will be keen on knowing the fate of iPhone sales and how the company guides for the next quarter. Apple has been feeling the heat of weaker iPhone sales projections for some time now. Morgan Stanley recently projected that iPhone sales will slow down in the June quarter, which further dented investors’ confidence. Sales of iPhones were disappointing in the first quarter too, as iPhone unit sales estimates have been steadily going down since late last year on perceptions of weakness in Apple’s supply chain.

Smartphone manufacturers have been complaining that the sales of number of smartphones have been declining for quite some time now, including growth markets like China and India. Also, Bank of America expects that Apple will guide for only 40 million units of iPhone sales in the fiscal third quarter. Understandably, the declining numbers can take a toll on the company’s revenues. Apple has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.23%. You can see the complete list of today's Zacks #1 Rank stocks here.

Also, the company has seen its earnings estimates go down from $2.71 to $2.69 for the fiscal second quarter, over the past 30 days.  Moreover, to add to the woes of Apple, comes the bleak financial outlook provided by Taiwan Semiconductors. The company, which is the largest chipset supplier to Apple, recently stated that its second-quarter 2018 revenues are likely to fall in the range of $7.8-$7.9 billion, lagging the consensus estimate of $8.5 billion. The weak revenue projection to a great extent can be attributed to the declining sales of iPhones.

Is iPhone X a Flop Show?

Apple’s new mobiles have always created hype. However, the company had a setback when its latest and most important product, iPhone X, failed to live up to the hype, as the $999 phone was priced a bit too high for the customers. Moreover, iPhone 8 and 8Plus look much like iPhone 6 and 6 Plus models, which are already more than three years older. Naturally, this created demand for an iPhone model that is close to the previous price. The company is already preparing a model that is close to iPhone X but cheaper.

However, it needs to be seen how iPhone loyalists respond to this as Apple has earned brand loyalty by not compromising on quality and the brand’s high price compared to other smartphones has never been a challenge to the company. On the other hand, the expensive iPhones are also creating pressure in growth markets like China and India, where people are opting for cheaper smartphones that boast similar features.

Can Apple Score on its Brand Image?

Understandably, Apple is saddled with challenges and it needs to be seen how it guides for the upcoming quarter. Amid all this, Apple’s biggest advantage is its user data privacy. This could possibly soften the blow of a likely unimpressive earnings performance in the first quarter.

Moreover, unlike Facebook, Apple charges its customers with the assurance of complete privacy of their data. This gives Apple a major lead at a time when tech giants are fearing a regulatory clampdown following Facebook’s data misuse scandal in mid-March.

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