iPhone consensus sales is expected to be 44.91 billion in 4Q, FY24, a 2.5% growth year over year.
Investors are looking toward Apple Intelligence as the catalyst for the next major iPhone sales cycle.
Apple is expected to report its 4Q fiscal 2024 earnings on Thursday, October 31 after market close. Analysts expect Apple’s revenue to come in at $94.215 billion and adjusted net income to be $24.239 billion. Adjusted earnings are likely to be $1.59 per share, according to Bloomberg's unanimous expectations.
Apple China in Focus
For Apple, the iPhone remains by far its most important product, as it directly contributes roughly half of all sales and draws consumers in to buy accessories like the Apple Watch or subscription services like Apple Music.
It has been a complicated time for Apple investors, who have struggled to get a clearer picture of the outlook for iPhone demand. iPhone consensus sales is expected to be 44.91 billion in 4Q, FY24, a 2.5% growth year over year.
The iPhone 16 debuted in September and has outperformed its predecessor so far, according to Counterpoint Research data. Consumers continue to shift to the pricier models, and sales of the top-end Pro and Pro Max models gained 44% compared with last year’s equivalents.
Apple's iPhone sales in China slipped 0.3% while rival Huawei posted a 42% surge in the third quarter of 2024, as competition intensifies in the world's largest smartphone market. Apple reached second place with a 15.6% market share, though down 0.5 percentage points year-on-year, showed data from researcher IDC.
Apple has since responded with multiple discount campaigns to boost sales. Apple Inc reduced iPhone 16 prices by up to 1,600 yuan ($225) on its Alibaba Group Holding's BABA Tmall store to boost sales during Singles’ Day, the world's largest shopping festival. The third-quarter performance was partly helped by the new iPhone 16, which went on sale on Sept. 20. The new iPhones got off to a strong start in China, with sales 20% higher in the first three weeks since launch compared with the 2023 models, showed separate data from researcher Counterpoint.
Given the smooth production ramp-up, consistent pricing strategy, and the initial wave of upgrades by existing iPhone users, the iPhone 16 series has experienced substantial growth in the Chinese domestic market. Sales from Greater China are expected to be 15.7 billion in 4Q, FY24. This represents a 4.3% increase over the last year.
Apple Intelligence Is a Major Catalyst
Apple Intelligence launched on Monday, but the rollout is just a glimpse of how Apple hopes to transform its products with artificial intelligence.
The tech giant unveiled initial features of Apple Intelligence — its suite of AI tools — on select devices with its latest software update for iPhones, iPads and Macs.
Apple’s AI features for iPhones will be available for free to users with any iPhone 16, iPhone 15 Pro and Pro Max, who update to iOS 18.1. Apple Intelligence is also available for iPad and Mac models that support iPadOS 18.1 and macOS Sequoia 15.
With Apple Intelligence, the company is implementing its first set of generative AI tools that aim to change how people use their iPhones and cement Apple’s stake in the AI race against competitors like Microsoft and Google. Generative AI is the technology that produces unique text and images in response to user-prompts — from obscure images to relentlessly catchy music.
The release of Apple Intelligence comes on the heels of the iPhone 16 release in September, which is equipped with chip hardware designed to support Apple’s AI-powered features.
A pivot to AI has been a focus for Apple since it first unveiled the suite of Apple Intelligence features at the annual Worldwide Developers Conference in June. Implementing new generative AI is at the forefront of Big Tech ambitions to maintain exponential growth, and after years of sluggish sales, Apple is betting on AI to boost its performance and reinvigorate its consumer base.
Apple Intelligence will likely dominate the call, but R&D expenses are not expected to ramp up in 4Q FY24. Operating margins might see a marginal lift, driven by double-digit growth in services and favorable product mix.
Investors and analysts are looking toward Apple Intelligence as the catalyst for the next major iPhone sales cycle. Shares of Apple are up some 35% over the last 12 months, and 19% since the company announced Apple Intelligence during its Worldwide Developer Conference (WWDC) in June.
Apple’s Vision Pro Dilemma
Earlier this year, Apple had hyped the launch of its Vision Pro. However, the device has experienced modest demand. Apple reduced the orders for this device. Apple will find it difficult to compete against Meta’s product lineup in this segment. A modest performance of Vision Pro can be another red flag for the company.
In the recent Meta Connect event, Meta reduced the price of its Quest 3S to $299. It is difficult to see how customers would be willing to pay 10X the price for Apple’s Vision Pro compared to Meta’s alternatives.
Meta has reported annual losses of close to $15 billion for the last three years. Apple would need to at least make a similar investment in order to build its VR segment. Apple’s management has been trying to protect its margins, and it is highly unlikely that the company would be able to absorb similar losses in order to build its VR business.
Even a cheaper Vision Pro might not be able to compete against Meta. We have already seen the poor performance of Apple’s smart speaker segment which was trying to compete against Amazon and Google.
Analysts’ Opinions
JPMorgan analysts led by Samik Chatterjee said they see demand improvement for the iPhone 16. iPhone average lead times - a key industry metric measuring the time from when an order is received to when the phone is delivered to the customer -- is now in line with the iPhone 15. Chatterjee rates Apple stock an Overweight with a price target of $265, implying a 12% potential upside to its current share price.
While average lead times for the iPhone 16 series have been tracking below the iPhone 15 until the fifth week after the launch, the lead times are back to tracking in line with iPhone 15 in week 6, providing more reassurance around recovery in demand momentum, Chatterjee said.
Evercore ISI analyst Amit Daryanani wrote in a research note Monday that the "staggered rollout of AI should also result in a stronger-for-longer iPhone upgrade cycle as the release of new features and new geographies should drive strong word-of-mouth advertising." He rates Apple as Outperform with a $250 price target.
TF International Securities' analyst Ming-Chi Kuo said iPhone 16 orders have been cut by around 10M units for the next few quarters.
"iPhone 16 orders were cut by around 10M units for 4Q24–1H25, with most of the cuts affecting non-Pro models," Kuo wrote on his blog. "As a result, iPhone 16 production for 2H24 is now estimated at 84 million units (down from around 88 million previously)."
Kuo added that after the cuts, total iPhone production for the next three quarters are forecast to be around 80M, 45M and 39M unit, respectively, compared to 84M, 48M and 41M in the fourth-quarter of 2023 and first two quarters of 2024, respectively. He also said mass production of the iPhone SE4 will start in December, with projected production around 8.6M units.
