Apple Q1 2019 earnings – Outlook hinging on the US-China relations

Apple largely delivered earnings in line with their earlier guidance, pinpointing the shortfall in iPhone sales to greater China weakness. It appears that the outlook depends to a large extend upon the US-China talks to succeed.

Apple shop front Source: Bloomberg

Beating the lowered guidance

Apple Inc.’s (AAPL) Q1 earnings saw a beat in terms of EPS and revenue, though expectations had been moderated earlier with lowered guidance. Earnings per share was delivered at $4.18 against the $4.17 market consensus. More details have been laid out both in the chart below and in our report earlier.

Apple earnings Source: Reuters

Key takeaway

The key takeaway here from the Apple update had perhaps been the uncertainty that remains with the dependence upon China. Apple CEO Tim Cook had outlined that the shortfall had arrived from iPhone sales driven by the performance in China, as iPhone revenue fell approximately 16% year-on-year for the quarter. The segment also remains the main revenue generator accounting for over 50% of the pie this round and therefore vital regardless of the shift towards growth in other segments. Notably, Cook had also shared his optimism in the US-China trade negotiations, a key determinant for Apple’s future performance. This heightens the relevance of the talks, if not of utmost importance already, for Apple shares.

The above said, however, it is worth noting that the move towards other segments continue to bear fruit. Both the services and the newly structured wearables, home and accessories segments saw revenue growth accelerating, contributing to the rise in Apple shares after-hours. A 5.57% gain had been noted while US futures likewise was seen on the climb.

On guidance going into Q2 2019, Apple had laid out the projection of between $55 to $59 billion, not straying far from the $58.83 billion forecast penned by the market at present. If materialised, this would be another slide in revenue on a year-on-year basis, though unlikely to be a surprise in light of the implications from the weaker Chinese demand to sustain. Longer-term, Apple remain one yet to find worthy competition in the specific market segment it is targeting, but the demand ails would be one to continue seeing turbulence to prices.

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