Apple's latest earnings guidance is conservative, but analysts are optimistic about iPhone sales

The Zhitong Finance APP noted that analysts have mixed opinions on Apple's (AAPL.US) latest fourth-quarter performance and guidance.

Morgan Stanley maintained its "Overweight" rating on Apple, giving a target price of $273. The firm pointed out that the September quarter performance and December quarter guidance provided some information for bulls—improving gross margins and accelerating services—while also offering some insights for bears—indicating a potential production cut in the December quarter, which left the debate between bulls and bears largely unchanged.

Analysts led by Erik Woodring stated that the stock price may fluctuate narrowly in the short term, but the downside is limited. They noted that consumer response to the company's first-phase artificial intelligence feature "Apple Intelligence" will be key to the December quarter performance increase.

Analysts added that the company's outlook for the first quarter of fiscal year 2025 is mixed, with revenue slightly below Morgan Stanley/buy-side expectations, but gross margins better than market consensus.

Analysts believe that expectations for the first quarter reflect a reduction in iPhone production by 3 to 4 million units, confirming their forecasts, but still expect iPhone revenue to remain flat in that quarter.

As the news of production cuts has been confirmed (with Wall Street estimates being quite clear), the downside for the iPhone 17 series, set to launch next year, may be limited, and analysts hope for an early release of the iPhone 17.

"The earnings report results are indeed mixed—September quarter revenue was below our expectations but above consensus forecasts," Woodring and his team stated in a report. They believe the main reasons are the lower average selling price of the iPhone and slightly weaker service performance.

However, analysts pointed out that seasonally, this is still better than the first two quarters of September, reflecting strong performance of the iPhone 15 in the later stages.

Meanwhile, Seeking Alpha analyst Uttam Dey held a positive view on the performance. Dey commented, "Apple's fourth-quarter performance was solid, exceeding expectations, with iPhone sales growing 6% year-over-year, indicating sustained demand for its smartphones."

He noted that Apple's fourth-quarter performance was quite different from Samsung Electronics' third-quarter performance reported earlier this week, which showed that the Korean smartphone manufacturer is losing its early momentum in the AI smartphone sector.

Dey added that Apple's performance is also an early sign that the iPhone 16 may be well-received in the smartphone market, "indicating that the iPhone upgrade cycle we've been waiting for is underway, which should help investors filter out the noise."

Bank of America Securities reiterated its "Buy" rating on Apple, with a target price of $256, citing the multi-year upgrade cycle for the iPhone, favorable gross margins, and strong cash flow.

A team of analysts led by Wamsi Mohan stated that iPhone demand remained strong in the September quarter, but service business revenue was slightly below Bank of America's expectations for the quarter (up 12% year-over-year) Analysts pointed out that Apple's revenue expectation range for the first quarter is lower than last year's same period median (between $3 billion and $4 billion), and this range is quite wide due to the impact of Apple's staggered product launches and the influence of new product and feature releases in the December quarter, such as the new Mac computers and the hearing aid feature on AirPods.

The expected gross margin of 46% to 47% indicates that the iPhone will continue to maintain strong momentum and has certain cost-effectiveness (as component prices, excluding memory, are relatively favorable). Analysts believe the revenue guidance is "conservative" and think that the performance in the first fiscal quarter has a chance to slightly exceed the guidance.

Analysts stated that due to the increase in the service portfolio, the gross margin in the third quarter should continue to remain strong