iPhone strength in the US will offset China weakness in Q3 and Q4, analyst says

Investment bank Goldman Sachs expects Apple to report a strong June quarter and guide well for Q4, driven largely by solid Q3 U.S. iPhone shipments and September quarter build estimates.

In a note to investors seen by AppleInsider, Goldman Sachs lead analyst Rod Hall believes that the re-opening environment in the U.S. could have driven a "short-lived pulse" in iPhone demand similar to a shipment surge in China earlier in 2021.

Along with iPhone performance in the U.S., Hall believes Apple will provide stronger September quarter guidance on its Tuesday earnings call with analysts. That's because of strong iPhone build numbers for the quarter and an "substantial iPad revenue backlog."

The strength of the iPhone in the U.S. is also likely to offset weakness in China, Hall added. As of the June quarter, government-provided sales data from China indicates that overall handset shipments are down 27% year-over-year in 2021 so far.

"We continue to be cautious on iPhone demand expectations later this year, but we expect mainly good news from Apple's report next week," the analyst wrote.

In Hall's opinion, the revenue comp in the fourth quarter to September will be less challenging to Apple because of the later-than-usual launch of the iPhone 12. The analyst also believes Apple flagged $3 billion to $4 billion of backlogged revenue, mostly associated with the iPad, heading into the September quarter.

On the July 27 earnings call, Hall says he is especially interested in hearing color from Apple CEO Tim-Cook and CFO Luca Maestri on how the Delta COVID variant is affecting the company's in-office operations, in addition to how the launch of App Tracking Transparency has impacted mobile App Store advertising revenue.

The analyst expects Apple to report revenue of $72.5 billion for the June quarter, gross margins of 42.1%, and earnings-per-share of $0.99 cents. The revenue estimate is slightly lower than consensus of $72.7 billion, while the EPS is the same as consensus.

For the fourth quarter, Hall estimates that Apple could report revenue of $83.1 billion and an EPS of $1.12.

The Goldman Sachs analyst maintains his 12-month Apple price target of $130, which is based on a 27x multiple applied to his earnings-per-share forecast. Historically, Hall has had the lowest price targets among Apple analysts.