Head of Saxo Strats
Summary: The slowdown in the Chinese economy and the dangers this presents to big tech was evident in the latest corporate earnings update from Apple. But although the company undershot expectations, things weren't as bad as they could have been.
Apple delivered FY19 Q1 (2018 Q4 calendar period) earnings results that were in line with estimates. EPS came in at $4.18 vs. est. $4.17, and revenue were $84.3bn vs. est. $84bn – that’s a 5% decline y/y. The company guides revenue in FY19 Q2 in the interval $55-59bn vs. est. $59bn which is a 3% miss at the mid-point. Guidance on gross margin was also 0.5%-points lower at the mid-point, indicating the worst pricing pressure since late 2016.
Key take aways are:
– iPhone revenue was down 15% y/y in FY19 Q1 confirming the sharp slowdown, failed price points on new phones and market saturation. The reason why Apple is no longer guiding iPhone volume numbers: the story is no longer about growth.
– Apple reported 62.8% gross margin in the Services segment (Apple Music, Apple Pay, iTunes and the App Store etc.) for the first time. Significantly higher gross margin than hardware segment and likely to be key driver of profit growth in the future. Services growth was 19% y/y reaching $10.9bn in revenue.
– Unlike Nvidia, which specifically mentioned the slowdown in China among gamers, Apple does not mention China at all.
– However, Greater China revenue is down 26.7% y/y! European revenue is also down. Basically confirms the macro story in Q4.
– Guidance (mid-point) on revenue in FY19 Q2 indicates revenue are to decline by 6.7% y/y, so further decline from recent quarter.
– Just as Nidec and other companies with heavy exposure to Asia have pointed out growth dipped dramatically in Apple FY19 Q1 (2018 Q4 calendar period). Annual growth rate went from 21% y/y at the end of September to -4.5% y/y at the end of December. The change is so significant that is not be ignored
As of 21:50 GMT (Tuesday) shares are up 3.5% in after-market trading. Investors are likely relieved that the outlook, while missing estimates, is not as bad as what could be feared. Playing the devil’s advocate here, the current environment is so unpredictable that we should likely not put too much weight on Apple’s ability to forecast revenue. We are talking a company that didn’t see a 26%-point change in revenue growth in one quarter.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
