Will Declining iPhone Demand Impact Apple's Earnings?

Key Takeaways

• The Estimize consensus calls for EPS of $3.27 and revenue of $77.138 billion, both are slightly higher than corporate guidance and Wall Street's estimates.
• After the runaway success of the iPhone 6, demand for the recently launched iPhone 6s has fallen flat, creating a source of concern
• With the maturation of the smartphone market, Apple is facing stiff pricing competition from a crowded industry.
• Once the darling of Wall Street, Apple faces its biggest challenge when they report FQ1 2016 earnings Tuesday January 26th, after the market closes. The coming earnings report will be closely scrutinized as it has become widely publicized that Apple is experiencing weaker iPhone sales. As a result, shares of the tech giant have fallen more than 25% from their highs in 2015 and have already dropped 10% in 2016.
• However, the Estimize community expects Apple to report favorably this Tuesday with EPS of  $3.27 and revenue of $77.138 billion, both slightly higher than corporate guidance and Wall Street. Compared to FQ1 2015 this represents projected YoY growth in EPS and revenue of 7% and 4%, respectively.
• After the runaway success of the iPhone 6, demand for the recently launched iPhone 6s has fallen flat as the mobile industry goes through a pricing war from a crowded competitive landscape.

The iPhone has become a staple for consumers of all ages and accounts for nearly two thirds of Apple's total revenue so sales in this segment are important. The iPhone has been Apple's fastest growing product over the past couple of years and as the market becomes more matures it comes as no surprise that growth has begun slow down.

Many companies in Apple's supply chain have begun to experience headwinds due to falling demand for Apple products. Many of these include semiconductor and radio frequency manufacturers which reported a shortfall in revenue largely due to slower growth from Apple and the mobile industry.

Likewise, major retailers such as Bestbuy have reported rising inventory levels due to lower than anticipated demand of mobile products. Contributing to this trend, macroeconomic turmoil including a slowdown in China, currency headwinds and a flat IT global market has put additional pressure on Apple's margins. The iPhone's ongoing success has been able to mask the cracks in Apple's otherwise declining products.

iPad sales have slowed down due to minimal upgrade demand and the release of the Apple Watch came with mixed reactions.

Despite a fundamental slowdown, Apple still remains one of the most profitable companies thanks to premium priced products which enjoy a stranglehold over the younger generation. With $200 billion in cash on hand and manageable debt obligations, recent headwinds should not be an indication of Apple's future performance.