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Apple is set to report its fiscal Q3 2023 earnings on Thursday, and analysts appear to be less than optimistic about what’s to come. As detailed by a new report from Reuters, analysts are predicting that Apple will report its “largest Q3 revenue drop since 2016” as it battles slowing iPhone sales.

The report, citing data from Refinitiv, suggests that Apple’s revenue for Q3 2023 will drop 1.6% compared to the same quarter last year. iPhone revenue, meanwhile, is expected to fall by 2% during the quarter, compared to an increase of 3% last year and 1.5% last quarter.

The report says that the slowing iPhone sales are primarily due to weak demand in the United States and South America, while China sales are “expected to be flat” for the quarter.

Much of the weakness in iPhone sales is expected to come from the Americas, where revenue is set to fall 6%, analysts said. Sales from China – Apple’s third-largest market – are expected to be flat due to an uneven economic recovery, though the company has fared better than Android rivals in the country.

Mac and iPad sales are expected to fall by 10.6% and 11.2%, respectively, according to Refinitiv data.

But the services business – home to Apple’s App Store and audio and video streaming services – could be a bright spot thanks to an uptick in the ad market, some analysts said.

The business, which accounts for roughly a quarter of Apple’s total revenue, is expected to grow 5.7% as it also benefits from price increases for iCloud subscriptions, though the pace is broadly similar to that in the preceding three quarters.

In the third quarter of 2016, Apple reported $7.80 billion in profit and $42.36 billion in revenue, down 27% and 14.6%, respectively, compared to the same quarter in 2015. The drop in earnings for Q3 2023 is, of course, far less significant than what happened in Q3 2016.

Apple does not report guidance for forward-looking quarters, but CFO Luca Maestri did give a broad outline of what to expect in Q3 2023 when speaking to investors in May:

We expect our June quarter year-over-year revenue performance to be similar to the March quarter, assuming that the macroeconomic outlook does not worsen from what we are projecting today for the current quarter. Foreign exchange will continue to be a headwind, and we expect a negative year-over-year impact of nearly 4 percentage points. For services, we expect our June quarter year-over-year revenue growth to be similar to the March quarter, while continuing to face macroeconomic headwinds in areas such as digital advertising and mobile gaming.

We expect gross margin to be between 44% and 44.5%. We expect OPEX to be between $13.6 and $13.8 billion.

The elephant in the room, of course, is that Apple is prepping to announce and release the iPhone 15 series in September. It’s normal for iPhone sales to slow in Q3 as consumers wait for the new iPhone lineup to be announced. Still, these analysts seem to think that this year’s decline will be worse than usual.

Apple will report its quarterly earnings this week on Thursday, August 3. As usual, the company will release its earnings report, then hold a conference call with investors and analysts to provide more detail. The call will be held at 2 p.m. PDT/5 p.m. EDT, with Apple releasing its full earnings report 30 minutes before that. The call will include a question-and-answer section with Apple CEO Tim Cook and CFO Luca Maestri.

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