Apple Keeps Tech Sector Earnings Afloat


Apple (NASDAQ:AAPL) may be just one company among many in the tech industry, but when it comes to profits and sales it is THE industry. Apple is expected to be the largest contributor to earnings growth for the information technology sector in the 2Q, according to FactSet Vice President John Butters. Without Apple, earnings for the sector would post a year-over-year drop of 6.0%. With Apple, the sector is barely growing at an expected rate of 0.2%.

IBM’s (NYSE:IBM) disappointing quarter won’t help the sector. On Monday, Big Blue reported a 13% drop in revenue to $20.8 billion which missed analyst estimates. Although the company noted currency played a role, profits also declined by 17% to $3.45 billion or $3.50 per share. Shares are down 5% in pre-market trading. Even so, investor Gary Kaltbaum of Kaltbaum Capital told FOX Business Network Apple is “100 times more important to the market than IBM.”

To Kaltbaum’s point,  Apple shares are trading around the $132 level, just shy of the record $134.54 and have gained 17% this year. Those gains are in-line with the Nasdaq Composite’s rally, which hit a fresh record Monday. Those gains, according to Dan Shaffer, of Shaffer Asset Management, show that the “tech sector is way ahead of itself.”

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The maker of iPhones and the Apple Watch will report earnings after the close of trading Tuesday. Profits are expected to grow 41% to $1.80, while revenues may grow 31% to $41 billion, according to analysts’ estimates. As important will be iPhone sales notes Butters, who points out this product has reported revenue growth of above 50% for the past two quarters.

Year-over-year comparisons are high for Apple; last quarter CEO Tim Cook told investors on the earnings conference call that executives were “seeing a higher rate of switchers than we’ve experienced in previous iPhone cycles. The success of iPhone has been extremely strong in emerging markets, where unit sales were up 63% year on year.”

As for the Apple Watch, others say it is less important as a revenue driver right now, but will serve as a benchmark to show whether the company still has the cache to develop must-have tech products.

*Updated 7/21/15 to reflect IBM stock trading in the pre-market.