Apple boosted by iPhone 7 demand, slowing pace of sales decline

After releasing a new version of its bestselling device, Apple likely sold 45 million units of all types of iPhones in the most-recent fiscal quarter ending September. Photo / AP

Apple's fourth-quarter results were bolstered by robust early demand for the iPhone 7, analysts predicted, helping slow the pace of a sales slump for the world's most valuable company.

After releasing a new version of its bestselling device in September, Apple likely sold 45 million units of all types of iPhones in the most-recent fiscal quarter ending September 24, according to Wall Street estimates. Revenue probably slipped for a third straight quarter, by 9 per cent, though that's smaller than the 15 percent decline in the preceding period, forecasts indicate.

Unlike previous smartphone rollouts, Apple didn't publish first-weekend sales data after the iPhone 7's September, 16th release. That means the company's fiscal fourth-quarter results, due after the market closes on Tuesday, will give the first major clues on how consumers responded to the new device.

Apple benefited from an earlier product launch this time, giving the company a week longer than usual to market the device. Even so, Apple's growth is being held back by rising competition from lower priced alternatives, especially in China, and smartphone saturation in many parts of the world. Shortfalls in components are also putting a lid on iPhone supply, analysts said.

Apple will likely guide that "iPhone 7 is off to a good start, but supply remains constrained," Piper Jaffray analyst Gene Munster wrote in a note to investors on Sunday.

Watch: iPhone 7 revealed

For other analysts, the iPhone 7 is a stopgap ahead of a more significant upgrade in 2017 to coincide with the 10-year anniversary of the first iPhone.

"iPhone 7 is proving an effective 'bridge' to the iPhone 10 super-cycle in 2017, where a powder keg of a dramatically aging installed base lurks just under the surface," Cowen & Co. analyst Tim Arcuri said in a note to clients last week.

Chief Executive Officer Tim Cook may be relieved to see the back of the 2016 fiscal year. The company likely endured its first annual revenue decline in 15 years as global smartphone demand ebbed. Share buybacks and a beefed-up dividend helped limit the repercussions for Apple shares, which declined slightly over the course of the year. The S&P 500 climbed 12 percent in the same period.

Investors will be particularly focused on China, where Apple's sales decline has been more pronounced. Competition has increased in Asia's largest economy from local rivals offering cheaper phones with similar specifications. There were 32 percent fewer iPhones activated in China in Apple's fiscal fourth quarter compared with a year earlier, according to an estimate from research firm JL Warren Capital.

The iPhone 7 was released a week earlier than prior models, which is likely to boost fourth-quarter sales, according to Goldman Sachs analyst Simona Jankowski. Apple has struggled to meet demand for the device, which has been boosted by the problems endured by competitor Samsung Electronics, she said. That could help Apple's sales in the crucial holiday quarter.

iPhone 7 is proving an effective 'bridge' to the iPhone 10 super-cycle in 2017, where a powder keg of a dramatically aging installed base lurks just under the surface.

Cowen & Co. analyst Tim Arcuri

The South Korean company recently ended production of its flagship Galaxy Note 7 handset after some devices caught fire. When Apple reports results on Tuesday, it will also provide a sales forecast for the final months of 2016. Analysts currently anticipate sales of $75.3 billion (NZ$105.16 b) for that period, in line with its revenue a year earlier.

With the smartphone market slowing, Apple has placed greater emphasis on its services business, which includes iTunes, iCloud and the App Store. The division has become Apple's fastest growing and in the latest quarter it likely benefited from the popularity of Pokemon Go, according to Piper Jaffray's Munster.

The augmented reality game was introduced at the start of July and Apple takes a 30 per cent cut of any sales when the game is played on its devices, via its App Store.