Apple’s earnings forecast highlights core challenge for the company

“Apple’s fourth-quarter figures may have beaten the analysts’ consensus forecasts but the sense of disappointment with the Californian’s firm’s guidance for the first-quarter of its new financial year is tangible, as shown by a share price drop in after-hours trading," says AJ Bell Investment Director Russ Mould.

“Boss Tim Cook’s core challenge is still how to revive the company’s growth prospects. In the fourth quarter, iPad volumes fell for the eleventh quarter in a row, iMac sales for the fourth time and iPhone sales for the third.

“The one bright spot was services, such as the App store and Apple Music, where sales rose 24% year-on-year to a record $6.3 billion.

“But as the Apple Watch confirmed its status as a dud, via a 22% drop in sales from the Other Products unit, Apple’s total sales and profits fell for the final three months and indeed the year as a whole.

“Perhaps a greater surprise was the lukewarm guidance for the first quarter.

“Despite a major crisis at key rival Samsung Electronics and Apple’s assertion that it was selling the new iPhone 7 as fast as it could make them, the company’s guidance implied just 1% sales year-on-year growth and an 8% drop in operating profit, at the mid-point of the provided range.

“That will remain a concern for investors as in theory the combination of a new product launch, woes at a key rival, Christmas and a booming services business could hardly be more helpful.

“The pressure is therefore on Cook to come up with a blockbuster iPhone 8 in 2017 (the tenth anniversary of the product) as Apple Watch and Apple Car fail to take up the slack.”

Source: Company accounts

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