What to Expect from Apple's Q2 2023 Earnings, including Declining iPhone Sales in China

Apple is set to report its fiscal second-quarter earnings on Thursday, with analysts projecting a 4.75% year-over-year drop in revenue to $90.3 billion. The company's iPhone sales in China, a key market, are expected to fall by 19% due to competition from domestic brands like Huawei and low expectations for Apple's performance.

According to Counterpoint Research, iPhone sales in China are anticipated to experience a noteworthy 19% decline in the second quarter.

This drop is attributed to the intense competition Apple faces from Huawei and other local competitors in the Chinese smartphone market. Overall, Apple's revenue is projected to decrease by 4.75% year-over-year, reaching $90.3 billion.

In addition to the challenges in China, Apple's other product segments, such as iPad, Mac, and Wearables, are also expected to see declines in revenue. However, there are potential bright spots in the company's earnings report. The Services segment, which includes offerings like the App Store, Apple Music, and Apple Pay, is projected to grow by 11% year-over-year, reaching $23.28 billion. This growth in Services revenue could help offset some of the declines in hardware sales.

Why this matters: Apple's performance in China and its ability to navigate the competitive landscape will be closely watched by investors and industry analysts. As the world's largest smartphone market, China plays a key role in Apple's overall success. The company's earnings report will provide insights into how it is faring against rivals like Huawei and the strategies it is employing to maintain its position in the market.

Investors are also eagerly awaiting any updates on Apple's artificial intelligence (AI) initiatives. The company is expected to unveil its plans to integrate generative AI into its products at the upcoming Worldwide Developers Conference (WWDC) in June. Apple has been working to catch up to its rivals in the AI space, and the announcements at WWDC could provide a clearer picture of its strategy and potential impact on future products and services.

Despite the challenges, some analysts believe that Apple's current underperformance compared to other Big Tech companies presents a buying opportunity. They argue that the integration of AI features into iPhones could trigger a major upgrade cycle and boost demand for the next iPhone series. However, Apple's ability to execute on its AI plans and deliver compelling features will be key to realizing this potential.

"The global economy is growing faster than expected, with the OECD upgrading its growth forecasts," noted an analyst, highlighting a potential positive factor for Apple's future prospects.

As Apple prepares to release its Q2 2023 earnings, all eyes will be on the company's performance in China, its Services revenue growth, and any indications of its AI strategy. The report will provide valuable insights into Apple's current challenges and its plans to navigate the competitive landscape and drive future growth.

Key Takeaways

• Apple's Q2 revenue is expected to drop 4.75% YoY to $90.3B, with iPhone sales in China down 19%.
• Services revenue is projected to grow 11% YoY to $23.28B, offsetting hardware sales declines.
• Apple's performance in China and AI initiatives will be closely watched by investors.
• Analysts see Apple's underperformance as a buying opportunity due to a potential AI-driven upgrade cycle.
• Apple's ability to execute on AI plans and deliver compelling features will be key to future growth.