Wednesday 18 July 2018

Apple under pressure as profit drop expected

Katherine Rushton

Apple is set to unveil record sales of $170bn at its annual results tonight, but profits are expected to tumble as the technology giant counts the cost of increasing competition.

According to analysts’ forecasts compiled by Bloomberg, Apple is on track to deliver a 2pc increase in its fourth-quarter revenues to a new high of $36.8bn, bringing its sales for the year to $170.3bn.

The company’s top line was buoyed by brisk sales of its newest iPhones, the 5s and the 5c, which set a new record, after more than 9m devices were sold in the first three days after their release.

However, although the annual sales are expected to be the largest the Californian company has ever seen, they will also mark a dramatic slowdown in its growth rate.

Apple’s full-year sales jumped 44pc to $156.5bn in the 2011-12 financial year, against an increase of just 9pc in the past 12 months.

Analysts predict fourth-quarter profits of $7.2bn, down more than 12pc on the same period last year. Annual profits are expected to fall just under 12 per cent to $36.7bn.

Although iPhones and iPads are still phenomenally popular, the company has come under strain from rivals such as Samsung, whose smartphones are increasingly attractive.

The intense competition has put downward pressure on how much Apple can charge for its devices, especially in emerging markets.

In September, the company introduced the 5c, a lower-end iPhone targeted at users on a budget, which it hoped would broaden its appeal. Last week, it also released a smaller, cheaper iPad tablet device.

However, analysts are preparing to grill Tim Cook, Apple’s chief executive, about its new products and exactly how well the cheaper models are selling.

Apple has reportedly cut orders of the plastic 5c by up to half, while retailers have reported tepid demand for it. Analysts are also expected to push him on the prospect of Apple increasing its cash return to shareholders.

The results come as New York Times columnist Nick Bilton and writer John Gruber have blogged expressing reservations about Apple's latest press conferences

Bilton wrote that Apple's latest events have replaced the “wow” with the “boring,” adding that "the shows are like watching someone perform the same magic show over and over. Eventually it stops looking like magic."

Gruber said it is "more like watching episodes of the same TV show, but with different bits each time. The show itself grows ever more familiar, but the content changes with each episode." This, he argues, puts the focus on the products being announced, not the show itself or the presenters.

Showmanship aside, Tim Cook will need to put a good spin on today's results and Apple's attempts to woo the mid-market, if he is to buoy investor confidence.

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