Apple (AAPL) released its third-quarter report, which showed it beat analysts' expectations on both the top and bottom lines, despite reporting a year-over-year decline in iPhone sales. Apple showed off its AI software update at its recent WWDC. Could it spur an iPhone upgrade cycle?
Tom Forte, CEO of Maxim Group and senior analyst for consumer internet, joins Asking For A Trend to discuss Apple's latest quarterly report and where the company will operate going forward.
Forte points out: "I think the ultimate story for Apple is that there's going to be an upgrade cycle for iPhones, which is still the most important product, half of their revenue. The question is how soon will that start? Because there have been headlines recently that suggested they're going to have new hardware for consumers, presumably in September, but they may have to wait for a software update to get Apple Intelligence up and running."
Forte has a Hold rating on the stock: "Because you're looking at a PE of over 30 times versus the big tech peers, more like 27.5. And if you compare iPhone trends pre-5G, there was actually a lot more pent-up demand for new iPhones that use 5G networks than I think there is pent-up demand for artificial intelligence." However, he points to a challenge for Apple: "If you look at Europe, which is about 25% of revenue, and China, which is about 19% of revenue, it doesn't look like they're going to be able to launch Apple Intelligence anytime soon."
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This post was written by Nicholas JacobinoVideo transcript
Okay, let's get some more feedback on this right away.
Let's go to Tom Forte Maxim Group, Managing Director and Senior Consumer Internet Analyst.
Uh Tom uh Apple's results are in.
Let's quickly get your thoughts on the report.
What do you think, Tom, before the June quarter?
I would say it was net positive, with both positive revenue and positive earnings, and the iPhone results were better than expected.
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If there was one negative point in the June quarter, it was that sales development in China was disappointing, as you indicated.
I do think investors will be very focused on the outlook for the September quarter.
Uh, if you look at the June quarter where they gave their forecast, they didn't really give a forecast for iPhone sales.
They talked about low-single-digit revenue growth, they gave some information about services and iPads, but they didn't give specific guidance for iPhones.
So with the expectation that there's going to be an upgrade cycle for AI, I'm really looking forward to their comments on expectations for September, particularly for iPhones. And what do you think, as you say, we haven't necessarily gotten all that color before?
What do you expect from Apple?
And how can we, you know, it's almost like the match against J Powell, how can we read between the lines of what they're saying?
I think the ultimate story for Apple is that there will be an upgrade cycle for iPhones, which are still the core professional product and account for half of their revenue.
The question is how quickly that will happen.
Because there have been recent headlines suggesting that Apple will release new hardware for consumers in September, but that they may have to wait for a software update to get Apple Intelligence working.
How quickly will they see this upgrade cycle for AI?
Uh, and I think they'll give us enough information after the earnings call to get a sense. Tom, you know, you often hear bulls say, listen, this largely depends on Apple's installed base and the number of active devices that people have in their hands around the world.
Apple even claims that the number of active devices installed has reached a new record across all geographic segments and that it is a success.
Tom will say, listen, there are a lot of people who have relatively old devices and they are looking for a reason to upgrade.
Tim Cook will take the stage in September and show you the new iPhone, with a faster processor and a better camera.
Hey, there's also some new AI AI features and I'm optimistic: there's just so many people looking at this point, they're sitting there with a phone that's 234 years old, Tom.
And they will be encouraged to upgrade and they will have every reason to do so.
What do you say to that, Tom?
So this is why I'm holding the stock, because you're looking at a price/earnings ratio of over 30 times the market, while the big tech companies are closer to 27.5.
And if you compare iPhone trends before 5G, you'll see that there's actually a lot more demand for new iPhones that use 5G networks.
Then I think there is a big demand for artificial intelligence.
Yes, I think there are a lot of devices that need to be upgraded.
The other challenge is regulation.
So if you look at Europe, which is about 25% of revenue, and China, which is about 19% of revenue, it doesn't look like they'll be able to launch Apple Intelligence anytime soon.
So I think there's a lot of demand from a lot of consumers with older devices, but I don't know if we'll see direct unlocking on the iPhone 16.
Uh, and you mentioned China.
Uh, sure, even though Luca Maestri told Josh that things are better in China.
The number itself fell short of expectations last quarter.
And what do you think about that?
I think we still need to keep a close eye on China.
Um, if you remember last quarter, there were a lot of press releases suggesting that the situation in China was significantly weaker than it actually was.
So I think China is doing pretty well.
I'm looking for additional details on the earnings call.
But you know, I think the challenge will be, will there be a big upgrade cycle if they can't have Apple Intelligence in China?
Tom, always fun to have you on the show.
Thank you for your direct response and analysis.
Appreciate it.
Thank you.
