Apple Inc. Q1 2019 earnings – China takes a bite

The December quarter earnings are expected to be brutal for Apple Inc., with the weaker Chinese demand and longer replacement cycle for handsets dampening performance. Guidance would nevertheless play co-pilot in guiding price action post-release.

Timing:

Apple’s Q1 2019 results will be due after the market close on Tuesday, 29 January, in the US. This will be in the early hours here for Asia Pacific the following day.

Weak expectations

The darling of the tech sector, Apple Inc., had long seen prices decline from its 2018’s height of above $220 to trade at around $155, most recently hit by its pre-earnings announcement of their guidance on Q4 results. Citing China as part of the likely 7-8% miss for their Q1 revenue, prices reacted with a 7.0% drop in the immediate aftermath. That being said, the company had also pre-empted increases in areas such as their installed base of active handsets and wearables. Earnings per share are also expected to come in at ‘a new all-time record’ according to CEO Tim Cook’s letter to investors.

Source: CNBC, Apple

Despite Apple Inc.’s attempt at shifting away from the reliance on handsets to other growth segments, such as services, there is little doubt that the upcoming release would have focus remaining on the iPhone’s performance with the component accounting for more than 50% of Apple’s revenue as of Q4 2018. The tech giant had; however, opted to no longer reveal the details of handsets sold making for rather opaque insights into the demand for their latest pricier handsets. Note that Q4 2018’s report had only incorporated a couple of days of sales of their 2019 release and the Q1 2019 period represent Apple’s key holiday sales season. This would then make the price reaction a function of the deviation from the current 7-8% miss base case scenario as pre-empted by Apple.

Evidently, the signs had been present along the way whether from Asia suppliers’ warnings or through reports of shifting attitudes from the Chinese audience towards this US tech giant amid the US-China trade scuffle. The redeeming factor; however, could come through strong growth in their star sectors, namely the services and other products segments, ones to watch.

Trade Apple’s earnings

With Apple’s cash flow, one would have their doubts over how badly prices could sink in light of disappointments. Prices had also escaped the downtrend channel with trade hopes fuelling gains ahead of further talks that are expected to run concurrently to the period of earnings release. Note that in light of this development, news ahead and alongside the Jan 30-31 US-China trade talk in Washington may also play a part in swaying prices over and above the results.

The current 12-month target price according to Refinitiv data sits at $181.57, which provides about 13% upsides from where we are two weeks ahead of the Q4 earnings release.