Addressing Concerns for Q4 Earnings

Introduction

Apple stock has been under scrutiny as it remains stagnant, even causing alarm among the bulls. Analyst Ben Reitzes from Melius Research highlights several major concerns that the tech giant needs to address in its upcoming fourth-quarter earnings report. Despite having a bullish outlook with a $240 target price and a Buy rating on Apple stock, Reitzes acknowledges the need for Apple to justify its premium valuation, especially considering its recent decline of almost 5% over the past three months.

Key Concerns and Outlook

Growth

Apple is anticipated to report declining revenue for the fourth consecutive quarter in November. However, the crucial aspect lies in the guidance for the December quarter, where Apple must provide a clear timeline for its return to growth. While facing challenges from a strong dollar and a shorter period compared to the year-ago quarter, Reitzes still predicts a 4% revenue growth. Additionally, ongoing upgrades to the iPhone 15, increased store traffic due to the launch of Vision Pro, and upgrades for iPad and Mac could contribute to revenue growth throughout FY24.

China

China represents both a problem and an opportunity for Apple, accounting for around 20% of its revenue. Reitzes emphasizes the importance of Apple outlining its strategy for the iPhone, app store, and supply chain in China. While concerns regarding the Chinese government cracking down on iPhone use by government officials and competition from Huawei's latest smartphone may be exaggerated, there is a potential threat in the form of stricter controls on foreign applications on iPhones in China.

Apple has not responded to a request for comment regarding Reitzes' report.

Conclusion

Apple's performance in the upcoming fourth-quarter-earnings report is highly anticipated, as it will shed light on its ability to overcome challenges and deliver growth. The key concerns highlighted by analyst Ben Reitzes include addressing revenue decline, providing a timeline for growth, and outlining a clear strategy for the Chinese market. As Apple confronts these hurdles, shareholders and investors eagerly await the company's next move.

The Impact of China's App Store Ban on Apple's iPhones

The Chinese government's potential ban on Apple phones downloading western apps could have long-term consequences for the iPhone's differentiation in the region, according to a report. Apple will need to navigate these demands while diversifying its supply chain from China to avoid incurring additional costs.

The Role of Artificial Intelligence for Apple's Growth

Although Apple has largely remained distant from the artificial intelligence (AI) hype, investors are now looking for growth drivers, which may require a shift in strategy. Industry experts believe that Apple needs to focus on generative AI and enhance its digital assistant Siri in order to reinvigorate demand for iPhones and other devices. Within the next two years, it is predicted that the integration of AI will drive an upgrade cycle for iOS devices and introduce new services from Apple.

The Potential Impact of Google's Antitrust Trial

Google's antitrust trial has brought attention to the annual payments it makes to Apple for being the default search engine on iPhones and Safari. Speculation regarding the potential nullification of this agreement suggests that it could cost Apple between $18 billion and $20 billion annually. Such a scenario would significantly impact Apple's gross margins.

Apple's Response: Launching a Search Engine or Focusing on Generative AI?

In considering how Apple should respond to the uncertain future of its search engine partnership with Google, one option is for the company to create its own search engine. However, experts argue that this approach would involve chasing the past. Instead, they suggest that Apple should concentrate on developing innovative generative AI services, which could provide a substantial boost to the company.