Apple Q2 earnings: Morgan Stanley expect modest surprise
We’re approaching the customary scrutiny that breaks out when Apple announces its financial results this Thursday.
There is no doubt that this has been a challenging quarter beset by headwinds, but this may not have impacted the company quite as much as some fear, suggests Morgan Stanley’s Erik Woodring in his latest Apple client note.
“We expect March quarter results and Jun quarter guidance to modestly exceed consensus, though we see some downside to Jun Q GMs given tariff backdrop,” he wrote.
What does Morgan Stanley expect?
We know quite a lot about some of the challenges Apple has had to handle in recent weeks. These include trade wars, regulatory pressure, problems with AI and potentially the slowdown of iPhone sales in some key markets. Woodring says he doesn’t expect Apple will say too much about those challenges – but perhaps this means less for the stock right now.
The analyst made several predictions.
- March quarter revenues: $95.7B, and EPS of $1.64, with 12% services growth
- June quarter estimates at around $89.3b.
- Capital returns in line with previous quarters.
- $235 price target.
What happens next?
In future, of course, Apple will need to define some of the answers to questions, including:
- How is Apple mitigating supply chain tariff risks short and long term, and what’s the impact on costs/margins?
- Is demand accelerating alongside sell-in, or is Apple pulling forward demand?
- When can we expect an updated Siri, and has Apple’s approach to AI shifted with personnel changes?
- What’s the status of Apple Intelligence approval in China and is nationalistic behavior threatening Apple’s standing in its second-largest market?
- Will Apple be forced to raise prices in the near future to offset tariff pressures?
- What is Apple’s relationship with the leaders of China and the US?
What about the tariffs?
In response to the tariffs, Morgan Stanley believes Apple “pulled forward “up to 6M of iPhone builds and 2.5M of iPad builds in the last 1.5 months, which should make for strong sales during the quarter. “IDC’s stronger-than-expected preliminary March quarter iPhone shipment estimate of 57.9M (vs. consensus of 50.3M) and Mac estimate of 5.5M units (+14% Y/Y) capture this dynamic, as do stronger iPhone and iPad builds (higher sell-in volumes) from our Greater China Tech Hardware colleagues earlier this month.”
Moving forward the analysts think Apple will seek to share some of the costs of tariffs within its supply chain, while also in-sourcing more of its own components and reallocating some production outside of China. That includes the move to make US iPhones in India, rather than in China. Apple may raise prices slightly but will essentially only tinker on price. The analysts do point out that US iPhone upgrade intentions are at a 10-year high, which could translate into strong support once Apple introduces iPhone 17.
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