Apple expects to post a quarter of revenue of $ 100 billion after the strong Christmas

Apple is expected to enter the new year and publish its first quarter of revenue of $ 100 billion, a major milestone for a company that first recorded the figure over a full year in 2011.

The $ 2.38 trillion tech giant is expected to post $ 102.6 billion in fourth-quarter earnings on Wednesday, a jump from $ 91.8 billion a year ago, according to Visible Alpha. Net income is expected to rise 6.3% to $ 23.6 billion, the largest quarterly profit ever made for a private company.

A handful of companies, including Walmart, have previously reported quarters of $ 100 billion, while Amazon is expected to break that barrier when it reports next month. But Apple’s profit margins are expected to be around 23%, about five times those of both retailers.

The figures are based on the assumption that iPhone sales will grow 6% from a year ago, a depressed expectation due to the iPhone 12’s coronavirus-induced multi-week delay.

“The fact that they are able to hit the $ 100 billion milestone with slower revenue growth for the iPhone suggests that they have done an amazing job of diversifying their portfolio,” said Tom Forte, analyst at DA Davidson. .

Apple, whose shares traded at a record high on Monday, had already demonstrated this capability in the fiscal year through September, when it managed to increase revenue in a rest period for the iPhone.

Apple’s earnings have been cyclical over the past decade, driven mostly by iPhone launches, but now, thanks to its abundance of hardware services and offerings – from streaming music to AirPods – its results have smoothed out.

Last year was the first year that iPhone sales fell, from $ 142 billion in 2019 to $ 138 billion in 2020, but overall revenues still increased. Despite the devices accounting for only 50% of sales, Apple’s revenues increased by 6%.

In the last quarter, every other category – Macs, services, wearables, and iPads – is expected to grow in double digits, in part due to the extra demand for Apple products as consumers upgrade their home offices during the pandemic.

Amit Daryanani, an analyst at Evercore ISI, is among those who believe that Apple will fall short due to supply constraints. It projects $ 94 billion in revenue.

“But that’s a reflection of how much supply they have – not how much demand there is,” he said. “The demand is much higher than the supply.”

Shifting has always been a major obstacle for Apple, but this time around it should be a favorable wind.

Otherwise he is optimistic and believes Apple’s stock could rise to $ 200 this year, turning it into a $ 3 trillion company.

Part of Daryanani’s optimism comes from how Apple will benefit from two macro trends. A weakened US dollar should help significantly, as three-fifths of Apple’s revenues come from outside the United States, while plummeting commodity prices should translate into lower input costs.

“The change has always been a big obstacle for Apple, but this time it should be a favorable wind,” said Daryanani. “And this is the first time we’ve seen component costs drop, so this could be another nice benefit to an earnings per share or free cash flow perspective.”

A possible headwind this year is a higher corporate tax rate from the Biden administration. Another is antitrust, as Apple is under fire for the way it treats developers who create iPhone apps. A third risk is that consumers will opt for cheaper iPhones rather than more expensive 5G models, as the need for a high-speed internet connection could be reduced by consumers spending more time at home with WiFi.

The first two risks aren’t immediate, however, and early signs indicate that the high-end iPhone Pro and Pro Max 5G are seeing “noticeable uptake,” according to Bernstein analyst Toni Sacconaghi.

The average selling price of the iPhone in the last quarter is expected to increase by 7% to $ 817, and that iPhone sales will increase by 8% to 79 million. Together, these trends suggest that iPhone revenues will jump nearly 16% to $ 64.8 billion, taking December revenues to over $ 108 billion.

If iPhone sales emerge stronger from the December quarter or the current quarter, it is increasingly difficult to see how Apple could stumble this year.

Even bearish analysts at Goldman Sachs – whose share price target of $ 85 is 38% lower than Apple’s today – expect the company to report revenue forecasts above the consensus of $ 105.3 billion, as all indications suggest that Christmas demand was strong.

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Goldman points out that the revenues of TSMC, which manufactures chips for Apple, grew 14% year-on-year in the December quarter, while Foxconn, Apple’s largest assembly partner, posted a 15% higher than expected increase.

Among the most bullish analysts, Morgan Stanley’s Katy Huberty predicts Apple’s revenue will grow 21.8% this year to a record $ 334 billion, driven by iPhone sales up 26.7% and every another category growing in double-digit percentages.

His optimism reflects the fact that if Apple solves its supply problems, 2021 should be the first year that its burgeoning hardware and services businesses will perceive the added benefit of a successful iPhone launch, as the iPhone 5G-enabled is Apple’s most significant product since the iPhone 6 came out in 2014.

“We haven’t seen that combination in this order of magnitude yet,” Forte added. “It’s like in Star Wars: we’re about to see the full operational power of the Death Star.”

Through: www.ft.com

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