Apple earnings set to miss expectations following UK's EU exit decision

Apple's earnings were tipped to take a hit due to economic turmoil and currency fluctuations caused by the UK's decision to exit the European Union (EU), and a broader slowdown in the iPhone replacement cycle.

Citigroup Global Markets analyst Jim Suva issued a report stating that demand for Apple's products is being affected by the economic fallout resulting from the UK's EU referendum on Jun. 23, and predicted that the company's earnings will fall short of expectations as a result, Bloomberg reported.

The investment bank cut its forecasts for Apple's earnings in the three months to end-June (Apple's fiscal third quarter 2016) and the quarter to end-September on the back of the uncertainty caused by the UK's decision, the Wall Street Journal reported.

Citigroup now expects Apple to report earnings per share (EPS) of $1.35 (€1.22) in its fiscal third quarter, compared to its previous forecast of $1.40. For the three months to end-September, the bank now expects EPS of $1.54 compared to $1.63 previously, the Journal revealed.

The bank also lowered its revenue forecast for the June quarter, from $42.2 billion to $41.2 billion, Fortune reported.

Apple is due to announce its fiscal third-quarter 2016 earnings on Jul. 26.

In addition to the economic uncertainty caused by the UK's decision to leave the EU, Apple faces broader headwinds in the form of a slowdown in iPhone replacement cycles.

Suva noted that iPhone users are today holding onto their devices for around 28 months compared to 24 months in 2013, Fortune reported. The analyst predicted that the cycle could soon break the 30-month barrier, and eventually reach as long as 36 months.

The news outlet cited FactSet data that states around 13.2 per cent of Apple's revenue is exposed to the European Union, with a further 2.3 per cent to the UK.

A weakening in the value of GBP against the U.S. dollar is also likely to fuel a slowdown in iPhone sales in the UK, Fortune noted, explaining that the devaluation is limiting UK citizens' purchasing power.

For more:
- see this Bloomberg report
- view this Wall Street Journal blog
- read this Fortune article

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