Apple Q2 results disappoint: Will a redesigned iPhone 7 revive fortunes?

For many analysts, the company's immediate future rests with iPhone 7, which Apple is expected to launch in September.

By: Reuters | Updated: April 28, 2016 10:05:31 am
Apple, Apple iPhone 7, iPhone 7 launch, Apple Q2 results, Apple Q2 results fail, Apple results, iPhone 7 rumours, iPhone 7 blog, iPhone 7 launch date, technology, technology news iPhone 7 is expected to sport a new look with features such as waterproofing, wireless headphones and force touch as the home button. (Source: Reuters)

Ask Siri if iPhone 7 will be the answer to Apple Inc’s problems, and you’re told that a visit to Apple’s website should answer that question “and more”. If only it was that easy.

Apple’s shares closed down 6.3 percent at $97.82 on Wednesday, wiping off about $36 billion in market value, a day after the company reported its first-ever fall in smartphone sales, arousing talk of “peak iPhone”.

For many analysts, the company’s immediate future rests with iPhone 7, which Apple is expected to launch in September.

“If iPhone 7 doesn’t surprise with meaningful new useful features, we worry that consumers won’t upgrade,” Macquarie analyst Ben Schachter wrote in a note to clients.

“And unfortunately, nothing that we’ve seen about iPhone 7 thus far strikes us as particularly innovative,” said Schachter, who cut his price target to $112 from $117 while maintaining his “outperform” rating on the stock.

The iPhone 7 is expected to sport a new look with features such as waterproofing, wireless headphones and force touch as the home button.

Also see: Here’s why India is Apple’s new China

But many wonder if that will be enough to entice users to dump their existing iPhones or switch from the Android-based phones that have come to dominate the smartphone market.

Goldman Sachs removed Apple from its conviction list after Apple’s results and said it expected the company’s shares to remain weak until the market gets more comfortable with the prospects for iPhone 7.
Goldman was among at least 16 brokerages that cut price outlooks on Apple’s stock, cutting its target to $136 from $155 while retaining a “buy” rating.

Of the 46 analysts covering the stock, 36 rate it “buy” or “strong buy” or the equivalent. The median price target is $121, according to Reuters data.

Also see: Apple Q2 results: Tim Cook’s top five comments on Indian market

Apple usually launches new iPhones in September and sells the most devices in the December quarter.
Unit sales typically drop over the next few quarters, picking up after the next iPhone launch.

NEARLY $200 BILLION WIPED OUT

Along with the weaker-than-expected iPhone sales, Apple reported its first drop in revenue in a decade. Sales in China, the company’s most important market after the United States, fell 26 percent.

Apple also forecast another disappointing quarter for sales.

The bad news overshadowed strong results from the company’s growing service business and an increase in share buybacks.

As of Wednesday’s close, nearly $200 billion has been wiped off the value of the world’s most valuable listed company over the past year – almost the equivalent of the market cap of Wal-Mart Stores Inc, the world’s biggest retailer. The stock last closed below $100 in February.

Apple’s disappointing results fit a recent pattern for tech companies. Microsoft Corp and Google parent Alphabet Inc came up short of expectations.

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Piper Jaffray’s Gene Munster said that while there were few bright spots in Apple’s report, he believed Apple’s shares would rebound in 2016 as iPhone sales start to grow again in the fourth quarter.

Still, there was a bigger question about the iPhone’s longer-term growth and other factors that can drive revenue, he wrote. “That question remains unanswered after the March report.”

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