Investors are waiting to see just how much the global economic slowdown has hurt Apple when it reports quarterly results on Tuesday, as the company works to prove that it can sell high-end products even in lean times.
Apple’s (NASDAQ: AAPL) once high-flying share price has fallen around 50 percent since the start of the year. Many wonder whether nervous consumers will continue laying out hard-earned cash on leisure items, especially during the holidays.
Another question mark is the new iPhone which was launched in July. While almost everyone expects the device to rack up strong sales, will it be enough to drive growth, especially if Mac computer sales suffer?
“The concern about the stock is that because of the macro-environment people aren’t going to be buying Macs, people aren’t going to buy iPhones, because they’re expensive,” said Andy Hargreaves of Pacific Crest Securities.
The company shipped roughly 2.5 million Macs in the June quarter, up 41 percent year-over-year, along with 11 million iPods, an increase of 12 percent. Wall Street will look for any signs of weakening demand in the fourth-quarter numbers.
Mac sales, which make up nearly half the company’s revenue, are premium products so some fear Apple is more vulnerable than competitors in a weak economy.
“Macs have obviously been doing phenomenal over the last couple of years but they are really reliant on a high-end consumer, and is that high-end consumer going to stick in there when their 401(k) is down 50 percent?” asked Morgan Keegan analyst Tavis McCourt.
That concern may have helped drive down Apple stock last Tuesday when it unveiled an updated line of laptops, cutting its lowest-price model by $100 — less than investors had wanted.
Given the precipitous decline of the company’s shares this year, a number of analysts have called the stock oversold and undervalued, prompting a modest recovery from 52-week lows.
Bernstein analyst Toni Sacconaghi upgraded the company to outperform on Monday. “Investors appear to be valuing Apple on an earnings multiple, rather than on cash flow, which fundamentally undervalues the company given the huge deferred revenue growth associated with the iPhone,” he wrote.
Pacific Crest’s Hargreaves sounded a similar note, also highlighting the iPhone’s potential. “They could report a cash flow number that could really surprise people.”
He expects the company to ship 5 million iPhones in the fourth quarter.
Apple released its new, less expensive iPhone on July 11. The company’s cash flow will reflect a full quarter’s worth of sales of the new model, although Apple will record the revenue over a number of quarters.
What may be of more interest than fourth-quarter results will be the company’s forecast for the December quarter. Although Apple is notoriously conservative in its outlook, many expect it to be even more cautious in the current environment.
McCourt said the most important question facing the company is “how holiday season sales are going to go for all their products. I think to a large degree September numbers for all companies are irrelevant considering how things have changed in the last few weeks.”
“I don’t have concern about this quarter’s results, I do expect the guidance to be weaker,” said Oppenheimer analyst Yair Reiner.
The company is expected to earn $1.11 a share in its fiscal fourth quarter, according to a poll of analysts by Reuters Estimates. Revenue is expected to come in at $8.04 billion, which would represent growth of nearly 30 percent.
Like many technology companies, Apple generates a lot of cash and has no debt. Last quarter, the company reported more than $20 billion in cash and short-term investments.
Apple shares fell 3.5 percent to $98.34 on NASDAQ late Friday afternoon.