Apple Dials Down Modest iPhone Hopes – Wall Street Journal

Apple’s iPhone 7. Apple sold 45.5 million iPhone units during the latest quarter.
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Seven hasn’t shaped up to be Apple’s lucky number.

The company just wrapped its worst fiscal year in more than a decade, so investors were looking forward to a slightly better one.

How much better is still in question following the company’s fiscal fourth-quarter results Tuesday. Apple sold 45.5 million iPhone units during the quarter—slightly above Wall Street’s forecast, but still down 5% year over year. That is despite the fact that the new iPhone 7 was available in stores for eight days of the quarter compared with just two for its predecessor in the year-ago quarter.


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Likewise, Apple’s revenue outlook for the December quarter didn’t inspire much confidence. At the midpoint, revenue would be up only 1% from last year’s comparable period. Apple says the supply of the iPhone 7 models remains constrained, but the company also is keeping a tighter lid on production after having been burned by excess inventory recently.

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That isn’t quite good enough for investors who have sent the stock up by 10% since Apple unveiled the iPhone 7 last month. Some of those gains were undoubtedly stoked by speculation that Apple would benefit from the unprecedented recall of the Samsung
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Galaxy Note 7. But Samsung’s woes were never likely to help Apple much in the short term anyway, especially given the iPhone 7’s limited supply.

On the other hand, Apple was undervalued going into the iPhone 7 launch and even now trades below 11 times forward earnings estimates, excluding net cash. That should limit downside for the shares, but Tuesday’s results and forecast suggest even the modest growth hopes for the iPhone 7 may be a stretch.

Write to Dan Gallagher at dan.gallagher@wsj.com

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