Apple (NASDAQ:AAPL) is expected to announce its financial results for the fourth quarter of its fiscal year 2016 and, more importantly, provide a forecast for how it expects its business to perform in the first quarter of its fiscal year 2017.
The first quarter in every Apple fiscal year represents the company's peak quarter, as it's the first full quarter that incorporates sales of the company's newest iPhone models, and iPhone sales comprise the majority of the company's revenue. Apple's performance in this quarter tends to set the pace for the remainder of the fiscal year, as it typically only does one flagship iPhone release in a given year.
With that in mind, here are three things that Apple management needs to address on its upcoming earnings call, after market close on Oct. 25.
How is iPhone 7 demand trending relative to iPhone 6s?
It is going to be absolutely critical for Apple to let investors in on how the iPhone 7 and iPhone 7 Plus are selling, in aggregate, relative to last year's iPhone 6s and iPhone 6s Plus. Apple has insight into both its build plans and the number of iPhones it's shipping to its distribution partners (known as "sell-in"), and it is very likely that the company has gotten enough feedback from said distribution partners to know how quickly those units are being sold to end customers (known as "sell-through").
Early on in the iPhone lifecycle, Apple's sell-in is pretty much limited to its ability to crank out the new phones (as demand tends to exceed supply). However, after a while Apple's production capabilities improve and the initial surge of demand usually moderates, leading to a situation in which supply and demand are in sync (or "balanced").
Is end demand for the iPhone 7 series of smartphones faring better than that for the iPhone 6s series of phones? If the answer is "yes," then that might indicate that iPhone demand bottomed with the iPhone 6s series, alleviating some of the fears that the iPhone 6 (which outsold the iPhone 6s series) represented "peak iPhone."
If not, then I suspect investors will watch the next iPhone cycle very closely, as Apple is expected to bring a substantially redesigned set of smartphones then. If those devices fail to stimulate demand growth (assuming the iPhone 7 and iPhone 7 Plus don't do the trick), the iPhone 6 may truly have been "peak iPhone."
How are the iPhone SE and iPhone 6s doing?
Although much of the focus is going to be on how the flagship iPhones are doing, Apple still sells a reasonable quantity of mid-range smartphones (Apple now serves this market with the iPhone 6s and iPhone 6s Plus) and low-end smartphones (Apple uses the iPhone SE here).
It would be interesting to hear how demand for the iPhone SE, which Apple released back in March to tackle the $399 to $499 smartphone market, is holding up. Has this device been able to help push Apple's share in these price points meaningfully upwards?
Perhaps more important, though, would be commentary on how the iPhone 6s and iPhone 6s Plus sales are progressing, now that they have seen both price cuts and storage-capacity increases. In particular, how are sales of these phones progressing, relative to how the iPhone 6 and iPhone 6 Plus sold when they were Apple's mid-range offerings?
Insight into sales of these products may make it easier for investors to make educated guesses on how many iPhones the company will sell throughout fiscal year 2017.
The iPhone 7 mix question
The iPhone 7 cycle is unique in that the iPhone 7 Plus is far and away the superior phone to the vanilla iPhone 7. The camera is obviously superior on the iPhone 7 Plus (likely the biggest selling point for the larger phone over the smaller, for most people), and the display is sharper (while being just as color-accurate, according to several third-party tests).
Additionally, while the iPhone 7 seems to be in reasonable supply, many iPhone 7 Plus models are still quite hard to get hold of in a reasonable time frame.
Though it may simply be the case that the iPhone 7 Plus is much more difficult to manufacture than the iPhone 7, it may instead be that demand for the 7 Plus relative to the vanilla 7 this year is significantly higher than it has been for prior Plus models relative to their non-Plus counterparts.
That's something that I'd like to see Apple shine more light on.
If higher demand ultimately proves to be the cause, Apple could be looking at a boost in iPhone average selling prices, as iPhone 7 Plus models are $120 more expensive than their iPhone 7 counterparts. Such an average selling-price improvement from a mix shift would be amplified by the fact that this year's iPhone 7 Plus models sell for $20 more than their iPhone 6s Plus counterparts did, when they were Apple's flagships.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple.
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