Apple is expected to publish excellent second-quarter results with revenue of $ 76.6 billion, which will reverse the standard narrative about the company.
The consensus with Apple in recent years is that the iPhone manufacturer has turned sharply to services and software as hardware sales are already saturated. For example, compared to three years ago in 2018, customers typically hold a new iPhone for four years, forcing Apple to find new sources of growth.
The 2020 results explain this: iPhone sales fell almost 7 percent in the March quarter results, while iPad and Mac sales were stagnant. A stronger-than-expected 17 percent growth in services – the unit that covers the App Store, warranties, and license agreements – proved a key point and generated a revenue growth.
When Apple reported its March 2021 results on Wednesday, its service revenue is expected to increase by more than 17 percent to $ 15.7 billion once again, but better news is expected for the company for the rest of its business.
In a noticeable change, the sales of iPhone, iPad, Mac and wearable devices including Apple Watch and AirPods are predicted to perform so well that services will be the slowest growing category of all divisions.
“Apple is shooting all cylinders,” said Morgan Stanley analyst Katy Huberty.
According to analyst estimates compiled by Visible Alpha, total revenues are expected to increase by about a third to $ 76.6 billion, and net profits are expected to increase by 47 percent to $ 16.6 billion.
The results are proud compared to a year ago, with Chinese factories closing late in the quarter due to the coronavirus and Apple’s decision to close retail stores worldwide. Still, Apple did not report a non-Christmas quarter with more than $ 65 billion in revenue, or less than $ 76.6 billion.
The iPhone is expected to have an overall outstanding quarter, with analysts estimating a 42 percent increase to reach $ 41.2 billion, or 54 percent of their total revenue. The rapid growth is partly due to some Christmas and New Year quarter sales pushed to 2021, after Apple’s first line of 5G-enabled devices was delayed due to supply chain constraints.
The strong recovery in the Chinese market is likely to play a big role; Huberty expects a record 11.1 million iPhones to almost double from a year ago. According to Visible Alpha, the number of iPhones shipped globally is expected to increase by 27 percent to 52 million.
The next fastest-growing category is expected to be iPad, and analysts estimate it will grow 27 percent to $ 5.6 billion. Similarly, Mac sales are expected to increase 22 percent to $ 6.5 billion.
Both categories are seeing increased demand from the education sector as students from all over the world enter Zoom classes. Analysts at Goldman Sachs, which has a “selling” rating at Apple, are predicting more demand in the June quarter thanks to the newly announced iPad Pro, which will be released in mid-May, but are warning of a final reversal.
“The current high levels of demand for both iPad and Mac are unlikely to be sustainable once the world reopens,” he told customers on a note. “So another rhythm driven more by these areas may not be enough to push the stocks further.
Huberty of Morgan Stanley is quite confident and said Apple has a “significant opportunity” to grow the Mac from 7 percent of the global PC market today to 15 percent (more in line with iPhone market share) by 2025.
Wearable devices are expected to increase by 21 percent to $ 7.6 billion. Such a speed is even more impressive considering that the category grew 54 percent a year ago.
Neil Cybart, an analyst at Above Avalon, points out that the Apple Watch alone is expected to sell about 40 million units this year – “roughly double the entire sales of the Swiss watch industry”.
If these forecasts come up or down, services will be the only category that grew below 20 percent in the last quarter, a striking achievement for the $ 2.3 trillion company.
That’s not to deny services – the category is Apple’s second-largest in terms of revenue, and with over 1 billion people using an iPhone, the suite of software products is likely to be sticky and consistent for years to come as hardware sales fluctuate.