Apple is single-handedly bringing down tech sector profits
The sheer size and volatility of Apple’s (AAPL) earnings are tipping the technology sector’s earnings the wrong way.
Currently, the technology sector’s earnings are projected to decrease by 3.9% year-over-year, based on analysts’ EPS estimates.
To better understand what’s going on here, Factset’s John Butters removed Apple’s earnings from the tech sector, and came up with the chart below where he compares tech sector EPS growth rates with Apple and without Apple:
Over the past six quarters, Apple has single-handedly controlled the tech sector’s growth rate. Back in 2015, the tech sector would have been in the red every quarter without Apple. This influence is most pronounced back in Q1 of 2015, where earnings would have declined by 4%, but instead increased by 3%, thanks to Apple.
However, this trend is now hurting the tech sector. The aforementioned 3.9% expected decline turns into a 2.2% gain in the second quarter, once you strip out Apple earnings. Butters also notes that Apple’s volatility is due to Apple’s reliance on the iPhone for earnings, which has been seeing big declines this year.
Investors may not need to worry for long, though. Right now, Apple is on the “S” refresh of its iPhone upgrade cycle, and sales generally decline during this phase as the “S” refresh generally doesn’t have as many new features or as unique a design.
Goldman Sachs analyst Simona Jankowski is expecting sales to start growing again once the iPhone 7 goes on sale. If true, this should help push the tech sector’s earnings back up, especially if the “ex-AAPL” part of it keeps growing as well.
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Rayhanul Ibrahim is a writer for Yahoo Finance.
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