S&P's Zino on AAPL: Need to Stabilize Replacement Cycle (Audio)

twelve million. But Twitter also said it sees third quarter revenue in the range of five hundred ninety six hundred ten million estimates there six hundred eighty one million. We are seeing Twitter shares decline, earnings from McDonald's to Caterpillar, pulling stocks in opposite directions. Today SMP five hundred index up less than a point to sixty nine benchmark indexes Little change down, Industrials down nineteen and drop there of point one percent. NAS stack up twelve, a gain of

two tenths of one percent. The tenure of four thirty seconds yield one point five five percent GO Hold up forty cents the thirteen nineteen little change their crude oil West Texas Intermediate down thirty two cents a barrel on w t I, a drop there of seven tenths of one percent. Apple's numbers Schedule four release just about twelve minutes from now. I'm Charlie Pellot and that's a Bloomberg business flash. This is taking Stock with Kathleen Hayes and

Pim Box on Bloomberg Radio. We are waiting for Apple earnings. It around four thirty Wall Street time. We're gonna be previewing those in just a moment, but Pim and I want to take a minute just to kind of take

a look at what Charlie Polloge has reported. Because when you first saw Twitter beating its uh it's earnings forecast by four cents, when you saw the monthly average users uh also just exceeding forecast, Pim, when you see the drop in the stock price after the third quarter forecast missed, Wow, that was that's quick punishment. Yes, shares of Twitter are

now down about ten percent in after hours trading. And you're referring to the guidance that the company is offering for the third quarter having to do with revenue, expecting between five hundred and nine million and six hundred and ten million revenue for the third quarter. Avage analyist estimate had been for six hundred and eighty one million dollars and the stock, as you say down right now, more

than ten and a half percent. And of course if you want to follow on your Bloomberg, there's a top live going right now to look at the Twitter results, to look at how the market reacts so you can follow it there. Let's get right to Angela Xeno now equity analysts of SMP Global Market Intelligence here in New York, to discuss what he has to see in the Apple earnings report this afternoon to with uphold his strong buy

on the stock. Angela, welcome back. So, uh, you're still very positive with a very high profile uh downgrade to sell actually of Apple share yesterday by Colin Gillis of B Cheesy b g C. Why are you maintaining your strong by yeah? I mean the main reason for the strong buy here is has to do mainly with the

risk reward on the stock here. We just think that there's um significantly more upside to the to our recommendation than there is downside and because of that we have a we have a strong by um as we kind of go into the earnings here. Uh, you know, I think most are well aware of that, you know, iPhones, um are not going to be good. We're looking at

forty million units. But that being said, we think the fundamentals on both the the iPhone numbers as well as the margins hit a bottom here in the June quarter and we should start to see sequential UH improvement ahead of the iPhone seven launch in September. What's your estimate for revenue? Do you concur with that revenue dropped at

analysts or for telling? Yeah, on the iPhone side, we're looking for the units to drop about fIF um with you know, a more pronounced con on the iPhone side of things about and that kind of gets it to where um, you said on the on the sales front, So um, we do concur with that. Um. It's it's not going to be pretty. At that being said, you know, I think it's well articulated across the street at this point.

And of course, looking at the the the downgrade by by b GCS Colin Gillis yesterday and you're touching on this, but the the risk that the upgrade rate for the next iPhone may slow even more than the upgrade rate of cycle of the success and I guess just this sense that for a lot of people. I mean, can you remember a couple of years ago when every Apple phone user had to get the latest one. I think, basically what some people are saying, it's becoming more of

a commodity. Phones just don't mean to us what they once did. Yeah, and I think that might be, you know, there's definitely some truth to that. I think if you look at the replacement cycle, it's of course extended here over the last year because of a lackluster iPhone success launched.

That being said, I mean, I think what the key here is the installed base has grown, you know, about eight percent over the last three years, more than ten percent here over the last year, despite the lackluster success launch. Um So, I all you really need to see at this point is a stabilization in the replacement cycle. You don't even need to see improvement, You just need to see some still sort of stabilization because that installed base has grown so much. And we think you're going to

see that with the iPhone seven launch. And I think if you see it, um we should see at least flat to slightly up I Phone seven numbers and we think that's enough to really start, um, you know, getting the stock moving in the right direction. What do you want to hear about Apple's business in China? Um? You know, once again we're probably looking at steep the clients for the June quarter out of China. UM. You know, any type of you know, positive sentiment out of China would

be great. From Tim Cook. I don't know if you necessarily hear that from him. UM, but you know, I I think you know, if you kind of listen to what he said, he said in recent quarters, despite the bad numbers, he remains very bullish on the long term potential of China. You probably hear that. But you know, whether or not, you know, that's good enough for investors. I think it remains to be saying how much does

the Apple Watch matter to you? At this point? It was reported recently the Apple Watch sales were down more than fifty percent. Is that just like, Okay, it didn't work, We move on? Or is that a big deal for Apple? No? Not necessarily with regards to the Apple Watch. The reason that the sales have been so dismal. Dismal is, you know, we we just haven't seen the new product launched since

the March of last year. And because of that, UM, you know, were I think we're at a point now we're just waiting for that next kind of um product to ramp. We're expecting a new Apple Watch in September. We actually think it could contribute about four points of growth in the December quarter and that should help, uh, you know, December numbers because the the expectations are pretty lofty four December. So we know, we remained very positive

on the long term story of the Apple Watch. However, you are definitely in a self past right now with regards to the product. Do you, by any chance a fan of Carpool Karaoke? Not necessarily, but you know about it? Ah, yeah, I've heard of it all right, Well, carpool Karaoke. Apple's decision to buy Carpool Karaoke. He's got a chance to listen to James Cordon of The Late Late Show. He's

turned that into an entertainment phenomenon is Apple. Uh, as far as you're concerned, Apple just needs to stabilize its results any at this point in time, given how poor the sentiment is. Yes, they need to stable as the results and then we can worry about improvement there after. Thanks very much, Angelo. As you know, he is equity analyst, for SMP Global Market Intelligence, giving us his view on Apple. This is taking stock. I'm PIM Fox. My co host

Kathleen Hayes, This is Bloomberg coming up Bloomberg Law. Brought to you by Benzel Bush, introducing the world's most technologically advanced vehicle, The New seventeen, receives Bensi, Classiden and ben Zebblers to find the way you drive at Benzel Bush America's premiere auto dealership in Englewood, New Jersey.