iPhone 6s. Image source: Apple.
In Apple's (AAPL -1.92%) third fiscal quarter of 2016, iPhone units and revenue were down 15% and 23%, respectively. This was an extension of a similar quarter of declines for the segment in the prior quarter. Apple investors are still getting used to this new dilemma, as iPhones sales didn't start to decline until this year. Unfortunately, Q4 will likely deliver more of the same.
Here's what to expect from Apple's iPhone segment this quarter.
An iPhone sales forecast for Q4
Apple doesn't provide a forecast for quarterly iPhone sales, so the best way to get an idea of what management might expect from the segment is to look at management's guidance for total revenue. Because iPhone sales represent about 57% of revenue, the trajectory of iPhone sales during a quarter strongly drives the trajectory of Apple's total revenue -- so their trajectories should be similar.
For Q4, Apple guided for revenue between $45.5 billion and $47.5 billion, representing a 7.8% to 11.7% decline compared to Apple's revenue of $51.5 billion in the year-ago quarter. If iPhone revenue follows a similar trajectory, Q4 iPhone revenue will be somewhere around $29 billion -- down from $32.2 billion in the fiscal fourth quarter of 2015.
Where would this put iPhone unit sales? Taking into consideration the fact that iPhone revenue will likely decline at a slightly steeper rate than iPhone units because Apple's lower-cost iPhone SE, which was introduced in March, is driving average selling prices lower, the trajectory of Apple's guidance suggests that iPhone unit sales will likely be somewhere around a range of 43.5 million to 45 million units. This is down from 48 million units in the fourth fiscal quarter of 2015.
Notably, if Apple's guidance for total revenue does reflect the company's expected trajectory for iPhone revenue during the quarter, Q4 would mark a moderation to Apple's trend of declining iPhone revenue compared to the previous two quarters.
Will the quarter get a boost from an early iPhone launch?
However, even if Apple expects a smaller year-over-year decline in iPhone sales in Q4, this may not be indicative of improving comparisons for the iPhone 6s cycle. Another potential explanation for a smaller expected decline during the quarter could simply be an earlier launch for its flagship iPhone, which usually launches toward the end of the tech giant's fiscal fourth quarter.
Image source: Apple.
Industry blogger Evan Blass, which AppleInsider asserts has a solid track record speculating about upcoming smartphone releases, said on Twitter that iPhones will be available in stores, and ship to customers, on Friday, September 16, giving Apple's new flagship phone about one extra week in the quarter to sell. In 2015, for instance, it wasn't until September 25 that the iPhone 6s and 6s Plus began shipping to customers. An extra week for Apple's newest iPhone to ship to customers during the company's fiscal fourth quarter of 2016 could give iPhone sales during the quarter a significant boost.
If Blass is right about Apple planning for an early iPhone launch, it's worth wondering just how steep the year-over-year decline in the company's guidance for Q3 would have been without the help of an extra week of sales of the upcoming flagship iPhone.
Looking beyond fiscal 2016's fourth quarter, Apple's guidance for the first quarter of fiscal 2017 will likely be even more interesting, as it will help investors get an idea of whether the tech giant expects iPhone sales to continue to decline, even after it launches its newest smartphone.
