To The Moon

$Apple(AAPL)$ will report fiscal Q2 earnings as the share price trades down nearly 12% YTD, underperforming the broader market. This selloff is due to concerns over iPhone sales in China, a weaker consumer environment, and slow start to the AI race.

So the earnings will be focus on these two areas : declining iPhone sales in China and its generative artificial intelligence strategy.

iPhone - Primary Generator Of Apple’s Revenue

I think the drop in iphone sales in Apple’s market, China, would be something that will be on investors’ mind. Apple's weak iPhone shipments in China have become well known.

Apple's weekly iPhone sell-thru during the first quarter of 2024 declined by 20% year over year in China, according to Counterpoint Research. Apple had an estimated ship share of 15.5% during the quarter compared to 20% during the same quarter in 2023. And on a global scale, iPhone shipments during the quarter totaled 50.1M units, which was a decline of 9.6% year over year, according to preliminary data from IDC.

Market is expecting Q2 EPS of $1.50 on revenue of $89.8 million, which is a decrease compared to Q2 2023's $1.88 on $117.51 billion. Apple is preparing for a lackluster quarter concerning iPhone sales. The firm's flagship product is encountering major obstacles in the pivotal Chinese market, where increased competition from domestic smartphone manufacturers is proving to be a significant challenge.

Moreover, worldwide consumers are retaining their iPhone devices for longer periods before upgrading, which is further hindering demand and sales growth. Given that the iPhone is the primary generator of Apple's revenue, this projected decline in iPhone sales is likely to have an adverse effect on the firm's overall performance for the quarter. Wells Fargo expects the smartphone replacement cycle to extend as updated iPhones only offer incremental upgrades, and consumers in markets such as China are shifting to phones with lower average selling prices.

If we look at the Q4 2023 market share, Apple was leading, but this could change now, as Samsung and Xiaomi should be catching up, with the consumers in markets such as China and Korea might be changing from Apple to their local brands.

Apple Long Term Investment in AI, Maybe Time For Payoff

I believe if you have been following Apple, we would have noticed that Apple has been investing in AI for years, and despite the current perception of AI as a laggard for AI, it should make Apple leader in AI, at least in the smartphone sector.

The most important things I believe we should look at is the talks that Apple has entered with $Alphabet(GOOGL)$ to incorporate the Gemini AI engine into the iPhone, this strategy would be an important milestone.

How Apple plan to execute the integration of generative AI functionality into its iPhone would be something I will look at in the upcoming earnings call. I believe there are other investors looking at this as well.

If we look at how Apple earnings and expenses are coming, we might see that the integration might not really cause Apple to fork out a huge sum of money for Capital expenses (CAPEX), this might be a good thing for Apple, as they can manage when and how many to deploy, on which models,

How Is Apple Doing In Terms of Technical Analysis?

If we look at how Apple have been trading, there is no significant breakthrough, but recently, we could see some interest in buying and there is a potential MACD crossover, and this might give some hope for a reversal for Apple for their upcoming earnings?

I would be monitoring closely and watch the earnings call for Apple strategy for the generative AI from Google into their phone.

Summary

I personally would like Apple to perform as I have owned a range of apple products from mac workstation, macbook, phone, etc. This is an innovative company which could make use of the integration with others services to make their product better.

I believe sales in China would pick up, but it is important for Apple to really define where is their consumer market, there might be some false intel which could cause them the market leadership.

First Apple need to understand how Chinese consumer are using the apple smartphone, they are using it for much more functionality than most of the other market, so this is something I do hope Apple take note.

Appreciate if you could share your thoughts in the comment section whether you think Apple would be able to reverse its losses till date with the upcoming fiscal quarter earnings?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.