Morgan Stanley believes that the figures in the Earnings Reports are not the most critical highlights of this Apple report. "Slightly exceeding expectations" has almost become a consensus in the market; investors are more concerned about a series of unresolved strategic issues, including tariff risks, AI Global Strategy, and iPhone demand, which will dominate market sentiment after the earnings report.
$Apple (AAPL.US)$ The Earnings Reports profits are already a "sure thing"? The real question is what will happen next.
On May 1, during Post-Market Trading, Apple will announce its Q2 Earnings Reports for fiscal year 2025, which ended in March this year. According to a message from the Wind Trading Desk, Morgan Stanley Analyst Erik W Woodring and his team pointed out in a Research Report released on April 28 that Apple may deliver slightly better-than-expected results.
Morgan Stanley also noted that the market may have anticipated Apple's robust financial data, and the real focus is on the "Other" aspects that the Earnings Reports failed to address—such as the impact and responses to tariffs, AI strategy, and the sustainability of iPhone growth—these factors will dominate market sentiment post Earnings Reports.
The Q2 Earnings Reports are expected to slightly exceed forecasts.
Morgan Stanley expects Apple's Q2 revenue to reach $95.7 billion, with EPS at $1.64, slightly higher than the market's general expectations of $94 billion in revenue and $1.61 EPS.
The report指出, given the uncertainty of tariff policies, Apple has accelerated production, boosting device shipments and sales for the March and June quarters.
The report raises Apple's iPhone shipment forecast for this quarter by 3 million units to 54 million units, and for the next quarter by 1.5 million units to 46 million units.
Secondly, the improvement in the Forex environment supports performance. The report states that the negative impact of Forex on revenue for the March quarter is expected to be 170 basis points, which is an improvement of 80 basis points compared to guidance, while the June quarter may bring a revenue boost of 120 basis points, which is a supporting factor for slightly higher than expected revenue.
The last point is that the growth of the service Business remains strong, with Apple's service Business expected to grow by 12% year-on-year in Q2, reaching 26.7 billion dollars, which is basically in line with market expectations, with App Store revenue performing as expected, while Google's TAC (traffic acquisition cost) is about 1% higher than expected.
Regarding revenue guidance, Morgan Stanley expects Apple's revenue guidance for the next quarter to be 89.3 billion dollars, which is basically in line with market expectations. However, the forecast for this quarter's gross margin (45.4%) is about 120 basis points lower than the market consensus.
The report points out that this is mainly because the model incorporates potential tariff cost impacts. However, Morgan Stanley believes that this gross margin risk has largely been absorbed by buyers.
Apple will update its capital return plan in this Earnings Report. It is expected that Apple will announce an increase of $110 billion in the Share Buyback authorization limit (maintaining a buyback pace of about $25 billion per quarter), and the dividend will increase by 4%, consistent with operations in April 2024.
The real test: tariffs, AI, and the fog of growth.
Compared to the relatively 'transparent' financial numbers, the market is more concerned about how Apple's management will respond to a series of unresolved strategic issues.
Morgan Stanley believes that the Earnings Report itself may not be a key catalyst, and investors should focus on the following key issues that will determine Apple's mid-to-long term development direction:
Tariff risk: How will Apple respond to short-term and long-term supply chain tariff risks? What specific impact will this have on costs and profit margins? Will prices for products be increased in the future to pass on costs?
Actual demand: Is the recent strong shipment a reflection of accelerated end demand, or merely a result of stockpiling to avoid tariff risks?
AI progress: When can we expect an updated version of Siri? Has Apple's AI strategy been adjusted due to recent personnel changes?
Political relations: What is Apple's current relationship with President Trump of the USA?
The report determines that, until clearer answers to these key questions are provided, Apple's stock price may remain in a range-bound fluctuation, with a established bottom of $170 and a new target price of $235 (the top of the range).
Currently, the impact of tariffs is the biggest risk point.
The volatility of tariff policies presents challenges to forecasting. The report anticipates that without mitigation measures, the new tariff assumptions will negatively impact Apple's gross margin by approximately 3 percentage points starting from the September quarter.
However, the report also states that Apple will partially offset the impact by sharing costs with the supply chain, accelerating self-production of components, and increasing product prices. In particular, regarding the iPhone, the report predicts that Apple will not directly raise prices, but may cancel the lower-capacity storage version when the iPhone 17 is released, using nearly 90% of the incremental profit margin from the higher-capacity version to absorb the tariff costs, while minimizing the impact on sales.
Based on this, the report expects Apple's gross margin this quarter to be at 47% or above (in line with or exceeding the company's guidance of 46.5%-47.5%), but next quarter's gross margin will drop to 45.4%, a sequential decline of 160 basis points (far exceeding the past five-year average decline of -3 basis points), and about 120 basis points lower than market consensus. From the September quarter to the 2028 fiscal year, its forecast for the company's overall gross margin is approximately 60 basis points lower than it would be without considering the new tariffs.
"Swallowing wealth in advance?" Strong performance in the first half may indicate weakness in the second half.
Morgan Stanley also clearly noted in the report that no substantial acceleration in terminal demand has been observed, and the recent strength in shipment volumes is mainly due to Apple increasing production and shipments in advance to avoid tariff risks.
However, this "advance inventory" may mean that future demand has been overstretched.
The report thus lowered the forecast for iPhone shipments in the second half of 2025, reducing it by 5.5 million units compared to the model before the tariff adjustment (a reduction of 4 million units in the September quarter and 1.5 million units in the December quarter). At the same time, the cost pressure caused by tariffs will continue to affect the gross margin of products in the second half of the year (expected to be 120-130 basis points lower than the original model).
Overall, the report believes that for 2025, "a stronger first half means a slightly weaker second half." Morgan Stanley currently forecasts Apple's revenue and EPS in the second half to be 5-6% lower than market consensus.
Still staying up late to look at reports?Futubull AI is officially launched!Come and use the AI features to interpret the Earnings Reports.
Editor/rice
