Can Apple Restore Confidence in Tech?

Q3 earnings have been a roller-coaster, as some tech names have disappointed. Now, attention is on whether Apple can beat estimates again and restore confidence in tech.

Focus on Sales Trends

Analysts are expecting a modest quarterly increase in Apple's sales, with a meagre improvement over last year. But, they have an eye on worrying trends for the year's final quarter (Apple's fiscal first quarter), where the company takes advantage of holiday sales. It's been over a month since the release of the latest iPhone 15, so there will be keen interest in how sales have performed so far. Preliminary indications are not so good, with analysts pointing to quickly falling delivery times as a potential sign that demand has not been as good as in previous launches.

There will also be much attention on China, where geopolitics and a slowing economy might have hurt sales. This came after Chinese officials banned iPhones for work, and analysts suggested that domestic Huawei has overtaken Apple as the most-sold smartphone brand in China. They report a double-digit decline in sales for the American brand in the Asian giant compared to prior releases. This could be a problem since China represents 20% of Apple's global revenue.

What About the Future?

Analysts aren't all that optimistic for a major turn-around in the near term, either. On Monday, ahead of the company's earnings release, several analysts cut their price target, citing expected weaker sales results in the December quarter. With that in mind, investors are likely to be laser-focused on sales guidance for the holiday season, particularly if the company doesn't manage to break the three quarters in a row decline in sales it has experienced.

The consensus is for Apple to report sales of $90.3B compared to $90.1B in the same quarter of last year, with a slight increase in EPS to $1.36 from $1.27 last year. The iPad and Mac divisions were seen weaker this last quarter, as the company planned to revamp and announce new models in the final quarter of the year. The bright spot might be in the Services division, but given the disappointing results from Google's cloud division, it might be that demand for hosting is under pressure, which could surprise the market to the downside. Analysts are particularly optimistic about this division, as it has seen the largest growth among Apple's offerings, but subscriptions could be coming under increased pressure with prolonged high inflation.

Wedge Pattern Completed

Apple's downward price action appears to have ended at $165 as a wedge pattern. Typically, wedges are followed by deep corrections, with upside probabilities rising only past the first peak of $190. Above there, breaking $200 could trigger a move to $210. If bulls fail to recapture the second peak of $182, we may see further declines in a flag pattern pending upward reversal or as a downward continuation, eyeing $157 and perhaps $143.

Source: SpreadEx / APPLE INC

Key Takeaways

Apple's Q3 earnings are anticipated to have a modest increase in sales, with concerns about future trends and the impact of geopolitical factors in China. Analysts predict weaker sales results for the December quarter and a focus on sales guidance for the holiday season. The consensus is for sales of $90.3B and an increase in EPS to $1.36. The Services division is a potential bright spot, although hosting demand might be under pressure. Subscriptions could also face challenges due to prolonged high inflation.