Apple Targets iPhone Growth in First Earnings Post Tim Cook's Exit Announcement

• Wall Street expects iPhone revenue of $56.7 billion, up 20% annually, fueled by strong iPhone 17 sales and new products including the $599 MacBook Neo laptop aimed at budget consumers
• Apple recently announced a partnership with Google to use its Gemini AI model for Siri, raising questions about the company's AI direction amid dramatically lower spending compared to rivals investing over half a trillion dollars this year
• Rising memory and storage costs from AI demand could pressure Apple's margins, though analysts believe the company has 'memory costs well under control' and has avoided significant device price hikes so far

Summary

Apple reports fiscal Q2 earnings Thursday, marking its first results since announcing Tim Cook will step down as CEO after 15 years, transitioning to executive chairman on September 1. John Ternus, a longtime hardware executive, will assume the CEO role.

Key Expectations:

• EPS: $1.95
• Revenue: $109.7 billion (15% YoY growth from $95.4 billion)
• iPhone revenue: $56.7 billion (20% YoY increase, driven by iPhone 17 popularity)
• Services revenue: $30.4 billion
• Mac revenue: $8.16 billion
• iPad revenue: $6.71 billion
• Gross margin: 48.4%

Strategic Developments:

Apple launched several products in March, including the iPhone 17e, refreshed iPad Air with M4 chip, and the MacBook Neo—a budget laptop priced at $599 targeting students and cost-conscious consumers.

Market Implications:

Investors are focused on three critical areas:

1. AI Strategy: Apple announced a partnership with Google to integrate Gemini AI into Siri. However, the company has spent significantly less on AI infrastructure than competitors (Microsoft, Google, Meta, Amazon), who are collectively investing over $500 billion this year.

1. Memory Costs: Rising memory prices from AI demand pose concerns, as Apple devices rely heavily on storage. Meta and Microsoft cited higher memory costs in recent forecasts, though Evercore ISI analysts believe Apple has memory costs "well under control."

1. Leadership Transition: Wall Street seeks clarity on Ternus's vision, particularly regarding AI positioning and operational strategy under new leadership.