Big suspects still remain about the fate of Apple’s hardware business, particularly the iPhone, top Wall Street analyst Toni Sacconaghi told CNBC on Wednesday.
The tech monster’s stock is surging after it reported earnings after the bell Tuesday that beat expectations.
“Expectations were low and they governed to modestly beat those but in absolute terms, the business is not particularly healthy,” the Bernstein senior technology research analyst mentioned on “Fast Money: Halftime Report. “
“We had iPhone revenue down 17% despite the fact that Apple had to cut costs to simulate demand in the quarter,” added Sacconaghi, a five-star-rated analyst on TipRanks, an analyst review service.
Customers look at outputs in an Apple store in Beijing on December 11, 2018.
Greg Baker | AFP | Getty Images
iPhone sales accounted for 53.5% of Apple’s receipts for the company’s fiscal second quarter.
However, combine that with the Mac and iPad, which are also declining, and “you participate in 75% of the company that ultimately is unlikely to grow and more likely to decline over time,” Sacconaghi swayed. “That remains the core issue.”
One of the growing businesses CEO Tim Cook highlighted during a call with analysts is Apple’s services gross income, which includes subscriptions like Apple Music and iCloud.
“It was our best quarter ever for services, with interest reaching $11.5 billion,” Cook said. Services revenue was up 16% from $9.19 billion in sales the after all is said period last year.
Sacconaghi called the services business “a real testament to both execution and their dream of what this business can be.”
If services and wearables continue to grow, it can help balance out the declines in iPhone and other armaments, but it won’t help push revenues into positive territory, he said.
“Over the next few years, revenues will be relating to flattish for Apple.”
By his math, if 20% of the company is growing 10% to 15%, it can offset about a 4% decline in the balance of the company, which is he said is “not an unrealistic outlook.”
That said, the iPhone business is cyclical and could start looking up when 5G criticizes out in late 2020, Sacconaghi pointed out.
“We could have consumers say, ‘Wow this is a phone we really need because 5G is genuinely compelling’ and revenues could be up double digits.”
Shares of Apple were nearly 7% higher in afternoon buying Wednesday.
— CNBC’s Kif Leswing contributed to this report.
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