A Mixed Outlook for Apple

By Joyce Yu

Philadelphia, PA–The main event of tech-earnings season comes after market close today when Apple Inc. reports its first quarter results, addressing concerns over the performance of the iPhone X since its launch. Apple stock fell this month after one of its key chip suppliers warned of “continued weak demand” for the key Apple product.

Despite growth headwinds, Apple, however, is expected to release a set of strong numbers. The consensus estimate among analysts is for Apple to have sold 53 million iPhones for the first quarter, up only slightly from the 50.8 million iPhones sold in the same period a year earlier.  Its overall sales are expected to increase 15% to about $61 billion.

Initiating a coverage for Apple shares with a buy rating, Wall Street firm D.A. Davidson notes, “While facing a number of significant challenges, including the continued rise of Amazon and Google, Apple’s high margin and large sales figures enable the company to generate significant free cash flow, which it increasingly returns to shareholders via buybacks and dividends.”

“With an eye for design, strong share in the premium (high margin) markets for smartphones and a growing (but select) number other devices, and the most valuable global brand, Apple remains one of the most significant technology companies in the world,” analyst Tom Forte wrote in a note to clients Monday.

Apple’s competitor Amazon seems to be in a much better position with today’s announcement of adding 2,000 jobs to its Boston tech hub in fields including cloud computing and speech science. This comes after a similar announcement on Monday in which Canadian Prime Minister Justin Trudeau said Amazon would be adding 3,000 jobs in Vancouver, British Columbia, and a much better than expected first quarter earnings released last week.

Amazon has a large presence in Boston which is a finalist to win the company’s second headquarters, and home to more than 1,200 employees for its smart assistant Alexa.

Separately, investors continue to pay attention to the macroeconomic condition ahead of the start of the Federal Reserve’s two-day meeting. A CNBC Fed Survey shows little chance for a hike at this meeting but an 86% chance that the Fed will hike in June. Respondents also raised their CPI forecasts with year-over-year inflation now forecast to hit 2.45% this year.

“Strong economic momentum and accelerating price and wage gains should lead to three more Fed rate hikes this year,” Kathy Bostjancic, head of U.S. macro investor services at Oxford Economics USA, wrote in response to the survey.

“It is no coincidence that a market correction and jump in volatility is happening as the Fed gets deeper into its tightening. It happens just about every time,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.