Apple Inc (NASDAQ: APPL) reports its quarterly earnings after the market closes on Thursday with a key focus on sales of its iPhone X.
The company is widely expected to post record profits for the December quarter- its first set of results to include sales of its 10th anniversary iPhone.
But ahead of the results, Apple has been plagued by rumours that it plans to cut production of the iPhone X due to sluggish sales of the device, which carries a hefty starting price of US$999.
BMO Capital Markets on Wednesday downgraded the stock, saying it estimates just 30% of phones sold for more than US$900 since only 12% of global smartphone sales were for devices priced over US$600.
"There has been much in the press about order cuts for iPhone X, and we believe a weaker mix in Q1 [the December quarter] will push estimates lower for March and beyond," BMO analyst Tim Long said.
Analysts forecast net income of at least US$19bn, beating its previous quarterly record of US$18bn in 2015.
China performance eyed
Investors will also eye how well Apple performed in China, where is has had to contend with fierce competition.
In the previous quarter, revenue rebounded in China following several periods of decline but consumers in the nation are reportedly unimpressed with Apple’s latest iPhone.
Closer to its home market, Apple increased its US market share last year to 44% to sell a record 22.4mln smartphones in the fourth quarter thanks to demand for the iPhone X, according to market researcher Counterpoint.
iPhone X to lift average selling prices
The iPhone X’s high price is expected to lift average selling prices, boosting revenues in the current quarter, even if unit sales are weak.
Morgan Stanley predicts average selling prices will rise to US$815 in the March quarter from US$752 a year ago.
As for overall unit sales of iPhones, analysts predict a figure between 80mln and 82mln, with the higher end representing an increase of about 5% compared to a year ago.
Total revenues are forecast to rise by more than 105 to about US$87bn.
iPhone battery scandal could lead to higher costs
Meanwhile, US lawmakers are investigating whether Apple misled investors by failing to tell them about a software update that deliberately slowed down older iPhones.
Apple has been accused of deceiving customers by reducing processor speeds in outdated handsets.
The company has owned up to slowing down older handsets but has said the move was designed to stop devices from abruptly shutting down.
Apple could face costs related to possible class action lawsuits or a fine if the investigation by the Justice Department and the Securities and Exchange Commission finds it acted inappropriately.
US tax reform
It has already had to fork out a record US$28bn tax bill to repatriate foreign cash following the US tax reform.
Apple will likely provide guidance on its new tax rate in its results. Morgan Stanley said a 15.9% tax rate could add another US$1.13 to this year’s earnings per share.