Apple (AAPL) is expecting some big profits when they report first quarter earnings tomorrow. But how big and where the sales are coming from stand to be two big points of contention.
The Financial Times reports that Apple will have sold more iPhones during the last quarter in China than in the U.S. Using analysis by UBS, The Financial Times says China accounted for 36% of iPhone shipments compared to 24% here. A good showing in China could help calm fears that Apple will have trouble selling phones in emerging markets. Yahoo Finance contributor Henry Blodget says China sales are key. “If it is true that Apple has sold more phones in China, that’s huge. If they can hang out at that high-end and there are enough people in China who are rich and want Apple and can see the value…they can sell a boatload of them.”
China’s growing mobile industry is a key target for Apple. Blodget thinks a big headwind Apple faces is the trend of cheaper phones displacing expensive ones. Something Samsung has already experienced. The South Korean company saw its profits drop 37% last year - losing big market shares to China’s top phone manufacturer Xiaomi.
Apple told investors in October that they’re expecting $63.5 to 66.5 billion in revenue for the first quarter. Blodget expects big iPhone 6 sales to propel Apple earnings. “This quarter and next quarter is going to be monstrous. Effectively, they raised the price by giving you such puny storage that you have to get the higher storage and then the bigger screen is another hundred. A lot of people want that. That’ll drop another hundred to the bottom line or close to it.”
Blodget says he’s thinking about selling the stock. “I think I probably will sell. I don’t know if it will be before the quarter or after the quarter. I’ve had it for a couple years now. It’s been a wonderful run. I just worry we go into a period in which it moves sideways for a while.” Shares of Apple have increased more than 40% over the last year.
Blodget says Apple’s iPhone 6 is so good that it may deter people from upgrading. “My concern is after this. You can’t see the reason for upgrading. It’s a huge jump in terms of the size. Everybody wants bigger screens and they delivered that. Going forward in smart phones it’s going to be incremental improvements. You can’t make it much thinner and lighter.”
Even with the Apple Watch due out later this year, Blodget expects growth to be an uphill battle. “I’m still a big skeptic on the Apple Watch. I will keep an open mind. I will try one when it comes out. But I’m still a skeptic. I do worry about growth after.”
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