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iPhone set for first annual sales fall ahead of Christmas rebound

Tim Bradshaw
Customers look at iPhones in an Apple store in New York.
Eduardo Munoz | Reuters

is expected to report the iPhone's first annual decline in sales volumes this week, but in turn fueling Wall Street's hopes of a rebound in the run-up to Christmas.

Apple is forecast to report iPhone sales of about 45 million units on Tuesday when it releases earnings for its fiscal fourth quarter, according to analysts, marking the third successive quarter of decline for its flagship product. That would take total iPhone sales to 211 million for Apple's 2016 financial year, which is about 9 per cent lower than the previous year.

Though the drop has long been anticipated by investors based on Apple's guidance, the result is a stark turnaround after Apple's blockbuster 2015, which saw iPhone sales surge by 37 per cent to 231 million, thanks to huge demand for the iPhone 6.

While the iPhone 6S was unable to sustain that level of growth, many on Wall Street have become more optimistic about the prospects for its latest version after Apple executives said last quarter that sales had passed the "low point".

Mobile operators in the U.S. and Europe, as well as some component suppliers, have voiced their confidence in early sales of the iPhone 7, which some analysts say may also see an added boost from Samsung's withdrawal of its Note 7 smartphone following a spate of battery fires.

In the U.S., said that pre-orders for Apple's latest smartphone were the largest it had ever seen, with initial demand as much as four times higher than the iPhone 6.

Such optimism has led to a gradual improvement in analysts' forecasts over the past few weeks. For instance, raised its iPhone estimates to 46m units in the fourth quarter and 75m for the three months ending in December.

"We believe investor expectations have already moved higher and are reflecting a beat and potential raise," said Deutsche analyst Sherri Scribner in a recent note to clients.

However, she expects a limited impact on Apple's shares, which have increased by almost a fifth in the last three months, given the renewed iPhone momentum has been "well telegraphed".

"Putting all of the pieces together, there is a good probability of Apple's [first quarter of fiscal 2017] guidance implying iPhone unit sales growth" in that quarter, wrote Neil Cybart, an Apple analyst at Above Avalon, in a recent note to subscribers.

Although iPhone unit sales are among the most closely watched figures among investors when Apple reports its quarterly earnings, analysts are also anticipating an increase to the average selling price of a handset owing to the popularity of the iPhone 7 Plus, which is sold out for weeks on Apple's website.

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However, some are concerned that supply constraints, particularly for the shiny "Jet Black" model, may limit growth.

"After the debacle seen with Apple overshooting iPhone 6s demand, management did not want to see a repeat situation occur this year," Mr Cybart said.

While many on Wall Street anticipate that Apple's smartphone sales will be little better than flat year-on-year in the December quarter, more bullish investors are already looking a larger wave of upgrades by customers when next year's iPhone arrives.

"The real catalyst [to Apple's stock] is the 2018 supercycle," said analysts at Morgan Stanley in a recent note, which predicts "accelerating growth" driving its shares back towards their peak of the iPhone 6 era.

After reporting earnings on Tuesday, Apple is also expected to unveil new Macs on Thursday. Reporters have been invited to a press event at its Cupertino headquarters with the tagline "Hello again". Many have interpreted the invitation as a reference to the original launch in 1984, when the computer famously introduced itself with the words "Hello, I am Macintosh."

Some Apple customers have grown impatient waiting for a meaningful upgrade to the MacBook Pro range, which last saw big design changes back in 2012. Analysts at Piper Jaffray said in a note this week that the launch could arrest the last three quarters' decline in Mac sales. The broker forecasts flat unit sales in the December quarter and growth of 4 per cent in the three months to March.

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