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Apple (AAPL) Q1 Earnings Preview: iPhone Sales, Services, China & More

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Apple (AAPL - Free Report) shocked Wall Street when it lowered its quarterly guidance in early January, citing a major slowdown in China and subdued iPhone sales. Now, as Q4 earnings season starts to ramp up, let’s see what investors should expect from Apple’s fiscal Q1 financial results that are due out Tuesday, January 29 (also read: Earnings Growth Slowing Down).

Overview

Apple lowered its fiscal Q1 2019 revenue guidance for the first time in over 15 years to roughly $84 billion, which marked a $5 billion downturn from the low-end of its previous holiday quarter outlook that called for between $89 billion and $93 billion. CEO Tim Cook pointed directly to slower sales in emerging markets, mostly Greater China, as well as fewer iPhone upgrades, as the two main reasons for Apple’s lowered quarterly outlook.

Apple’s announcement worried global markets because it signaled that China’s economy could be headed in the wrong direction. These fears were seemingly confirmed after reports this week showed that China’s economy hit its slowest growth pace since 1990 as the trade war continues. Chinese e-commerce powerhouse Alibaba’s (BABA - Free Report) quarterly estimates also highlight the slowdown (also read: What to Expect from Alibaba Earnings Amid Chinese Economic Slowdown).

Apple stock closed regular trading Wednesday at $153.92 a share, which marked a roughly 34% downturn from its 52-week high of $233.47. With all that said, we should quickly note that Apple stock has outpaced Facebook (FB - Free Report) , Google (GOOGL - Free Report) , and the S&P 500 over the last three years, despite falling short of fellow FAANG peers Netflix (NFLX - Free Report) and Amazon (AMZN - Free Report) .

Fiscal Q1 Outlook

Apple’s Q1 2019 revenues are projected to slip 4.75% from the year-ago period to hit $84.1 billion, based on our current Zacks Consensus Estimate. Apple’s revenues surge 20% in Q4 and 13% in Q1 2018. At the bottom end of the income statement, the company’s adjusted quarterly earnings are expected to pop 7.2%.

iPhone

As investors might have feared, Apple’s quarterly iPhone revenues are projected to fall roughly 15% from $61.576 billion to hit $52.264 billion, based on our current NFM estimate. Meanwhile, iPhone unit sales are expected to fall by a similar percentage from 77.316 million in Q1 2018 to 65.425 million.

Investors should note that 2019 will be a year of hard comparisons for Apple since every quarter’s growth will now be measured against quarters that already included the firm’s higher-priced new iPhones. Last quarter, iPhone revenues surged 29%, while iPhone unit sales came in flat from the year-ago period.

Services

Moving on, let’s see what investors should expect from Apple services unit, which has been an important growth driver and will remain a closely watched metric on Wall Street. Apple’s services revenues are projected to surge over 27% from $8.471 billion to reach $10.819 billion this quarter, based on our current NFM estimates. This would top last quarter’s 17% expansion, Q1 2018’s 18% climb, and the 25.5% average growth over the trailing six quarters.

Apple’s services division has expanded in recent years on the back of Apple Pay, Apple Music, among other units. This unit might even soon include Apple’s new streaming TV service that is expected to launch sometime over the next year to challenge Netflix, Amazon, Disney (DIS - Free Report) , and AT&T (T - Free Report) .

Greater China

In China, Apple’s quarterly revenues are projected to slip from $17.956 billion in the year-ago quarter to $17.129 billion, which would mark an approximately 4.5% downturn. Sales in Greater China jumped 16% last quarter and 11% in Q1 2018. We should note that the world’s second-largest economy has accounted for 18% of Apple’s revenues in each of the last two quarters.

Wall Street will constantly monitor Apple’s Chinese revenues, which could continue to fade amid the country’s slowing economy. Plus, Apple has always faced a ton of competition from lower-cost smartphone makers.

Other Products

Lastly, let’s see what to expect from Apple’s “other products” revenues, which includes Apple TV, Apple Watch, Beats products, and more. The firm’s other products unit is projected to soar roughly 38% from $5.489 billion in the year-ago quarter to hit $7.548 billion. This would top Q1 2018’s 36%, Q4’s 31%, and the trailing six quarters’ 33.5% average.

Apple is scheduled to release its Q1 fiscal 2019 financial results after the closing bell on Tuesday, January 29. Make sure to come back to Zacks for a complete breakdown of Apple’s actual quarterly earnings results.

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