Apple earnings may offer a hint about the iPhone 14’s success

By Clare Duffy, CNN Business

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

On Thursday afternoon, Apple will report earnings results for the September quarter, a period that includes about two weeks’ worth of sales of the iPhone 14 lineup. While the time period is limited, Apple’s results and its commentary for the current holiday quarter could offer insight into how the company and its core product are weathering an economic downturn that’s taken a hit to other tech companies’ results.

Apple shares briefly dipped last month following a report that the company had abandoned plans to increase production of the iPhone 14 lineup in the second half of this year because of lower-than-expected demand. (Apple did not respond to a request for comment at the time.)

Analysts forecast Apple to post revenue of $88.9 billion, up more than 6% year-over-year, a marked slowdown from the 29% sales growth it posted in the year-ago quarter. It is expected to report profits of nearly $20.4 billion, essentially flat from a year earlier.

In recent years, Apple’s iPhone releases have lacked the kind of game-changing new features and significant hardware redesigns that encourage many users to upgrade whether they need a new phone or not. But this year, as consumers grapple with high inflation and fears of a possible recession, convincing them to shell out $799 or more for a new device may be even trickier. The strength of the US dollar could also make devices appear more expensive to non-US consumers, which comprise a significant portion of Apple’s business.

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

Still, analysts say there is some 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 average selling prices for iPhones across the board, according to Angelo Zino, senior equity analyst at CFRA research.

Apple no longer breaks out how many iPhone units it sells. Instead, it only reports total revenue generated from the product segment, making it harder to precisely parse demand.

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

Brian White, analyst at Monness, Crespi, Hardt, said in a Friday investor note 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 play into a slowdown for Services. During an earnings call this week for Google-parent Alphabet, CFO Ruth Porat said Google Play revenue was down slightly because of a decline in user spending on the platform, and particularly a decline in engagement in gaming from earlier in the pandemic.

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

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