TradingKey - This week marks the start of a flurry of Big Tech earnings in the US. Typically, a bunch of the “Magnificent Seven” companies report close to each other – within a space of 7-10 days – and for investors the numbers released can make or break the market.
That’s down to the fact that the Big Tech giants make up such a huge part of the US stock market. The tech giants come no bigger than the tech firm behind the iPhone, Apple Inc (NASDAQ: AAPL). It reports its Q1 FY2025 earnings (for the three months ending 31 December 2024) on Thursday (30 January) after the market closes.
With everyone watching how Apple copes with a slowing Chinese economy and how its newest iPhone performs – in terms of sales – it will be an interesting quarter to watch. Here’s what investors should be monitoring.
Is China going to see more weakness for Apple?
During Apple’s last Q4 FY2024 earnings report, revenue from Greater China fell slightly year-on-year to US$15 billion despite the fact that Apple’s overall revenue grew 6% year-on-year for the period.
That suggests that Apple’s business there is struggling, especially with the data coming out that local smartphone sales are outpacing those of foreign brands. Data from the China Academy of Information and Communications Technology (CAICT), showed that shipments of foreign-branded smartphones in China fell by 47.4% in November 2024.
Given Apple makes up the majority of foreign-branded smartphones in the country, that was an ominous data point for investors. Indeed, that has recently been backed up by fresh data – from Counterpoint Research – that has seen Apple cede over 18 percentage points of market share in the China smartphone market as of Q4 2024 compared to the same period a year earlier.
The main competitive threat for the iPhone giant has been coming from local brands such as Huawei and Vivo, with the former now the largest vendor in China by market share and seeing its share rise an impressive 15.5 percentage points in the lates quarter.
China smartphone sales market share, Q4 2023 vs. Q4 2024
Source: Counterpoint Research as of 21 January 2025
Apple Intelligence and AI
One of the focuses for the market will be whether Apple’s new Artificial Intelligence initiative – which it dubs “Apple Intelligence” – is really making any headway.
As other Big Tech firms have been very active in the generative AI space, Apple hasn’t been as gung-ho about the technology. However, the recent launch of Apple Intelligence for its latest iPhone 16 suggests that Apple is figuring out ways to integrate AI into its lineup.
Apple Intelligence was unveiled in June 2024 and not all of its AI features are available yet. Indeed, the company plans to roll out more updates progressively in 2025. Investors will be keen to hear more from management on what that might entail.
For analysts, figuring out whether the company is on the cusp of an AI-powered upgrade cycle for its iPhone is harder to discern. Guidance from Apple’s management for the upcoming Q1 FY2025 quarter was set at low- to mid-single-digit revenue growth and suggests a level of cautiousness from them.
Services growth to surprise?
Finally, Apple’s Services division continues to perform strongly and in Q4 FY2024, the company saw its Services division bring in revenue of US$25 billion – a record high. While guidance for percentage revenue growth in Services for Q1 FY2025 stands in the low-double-digits, investors will be optimistic that Apple can beat on this front.
The main focus for investors will, no doubt, be on iPhone sales and how much revenue they were able to bring in from their flagship product during the quarter – given iPhone sales bring in over US$200 billion alone annually and makes up more than half of Apple’s overall revenue.
Apple shares fell on last month’s poor China foreign-owned smartphone sales data so investors could perhaps expect the same heading into its earnings. Having said that, expectations are rather low given all the data investors have digested and the “worst case scenario” may already be baked into its price.
While Apple shares are up 18.6% in the past 12 months, they have fallen 5.7% so far in 2025. This suggests investors are bracing for a potentially weak report but investors who believe in Apple’s future may find its current share price an interesting entry point to either initiate a position or add to one.
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