- For Apple, 2019 was all about new product expansions into areas like television and personal finance and boosting its wearables and services business.
- Although Apple proved that it could still boost its overall revenue through products like AirPods and digital services despite declining iPhone sales, Wall Street will remain fixated on the iPhone in 2020, analysts say.
- When Apple reports earnings on Tuesday, analysts will be looking for clues about Apple's plans for implementing 5G into its iPhones, as well as how sales are performing in China.
- 2020 is expected to be an important year for iPhone sales, as analysts have predicted that the addition of 5G could prompt an increase in iPhone upgrades, potentially bringing Apple's smartphone business back to growth.
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Last year was all about Apple's efforts to show life beyond the iPhone - from services like Apple TV Plus streaming media to financial products like the Apple credit card.
It was a necessary move for the company, given the industry-wide slowdown in smartphone sales.
But in 2020 the spotlight has swung back on the iPhone, which remains Apple's most important product even as newer gadgets like AirPods and the Apple Watch have become established hits.
When Apple reports earnings for its fiscal first quarter of 2020 on Tuesday afternoon, Wall Street analysts will be hungry for details about the company's plans for incorporating 5G connectivity into its future iPhones and how its smartphones are being received in China, the world's second largest economy.
Apple's Q1 2020 earnings will come after the company had a bruising first fiscal quarter in 2019, in which iPhone sales plummeted by 15% during the all-important holiday period. That set a low bar for Apple to clear through the rest of 2019, according to Tom Forte, senior research analyst for DA Davidson.
"The expectations for calendar [year] 2020 are a lot higher for the company than calendar [year] 19," Forte told Business Insider.
Throughout most of 2019, Apple was determined to prove it could offset declining iPhone sales by finding new areas of growth, a goal it largely achieved through its burgeoning wearables and services businesses. In the fiscal fourth quarter of 2019, for example, Apple's wearables, home, and accessories business grew by 50% and its services division ballooned to $12.5 billion, up from $10.5 billion in the year-ago quarter. Overall revenue also grew by nearly 2% year-over-year to $64 billion, giving Wall Street some confidence that Apple could grow even as iPhone revenue drops.
That sentiment looks like it will continue into the first quarter of 2020, with analysts at JP Morgan and DA Davidson expecting services and wearables to drive the company's growth. Daniel Ives, managing director of equity research at Wedbush Securities, said he's expecting Apple to report an earnings beat of about $1 billion fueled by iPhone demand and AirPods outperformance.
Waiting for the 5G super cycle
But the iPhone will still be front and center for Wall Street, as analysts are likely to seek answers about Apple's reported plans to launch four 5G-enabled iPhones in September. Expectations for this year's iPhone launch already appear to be high; even before Apple launched its iPhone 11 lineup last year, analysts had suggested the company's 2020 iPhones could bring the company's smartphone business back to growth.
"I think the big thing is really going to be the drum roll going into 5G, and how Cook and Cupertino are looking at the trajectory for the rest of this year," Ives said to Business Insider. "Not just on iPhone 11, but going into what looks like a super cycle for 5G. So I think any data points around that is what the Street's going to be laser focused on."
Apple's reception in China will be key to Apple's iPhone growth, as Ives predicts that between 60 million and 70 million iPhones are going to be in the window of an upgrade opportunity. Apple would need to convert about half of those iPhone owners over the next two to three quarters, Ives says.
"China is really going to be the key to the overall thesis," Ives said. "I think that's really going to be front and center in terms of conference calls, specifically around growth and demand in that region."
That's not to say Apple's other business areas won't be a focal point during earnings; both Forte and Ives said analysts will likely be looking for clues about how well the Apple TV Plus streaming service is performing, which the company launched in November 2019.
But despite these new product areas, this year will still largely be about Apple's most important product, the iPhone - unlike last year which was more about Apple's growth beyond the smartphone.
"Calendar [year] 2019 was essentially about the company and its emerging efforts," said Forte. "2020 plays to Apple's strengths."
