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Without a big product launch, don’t expect too much from Apple’s Q2 earnings tomorrow

Early signs indicate that Apple’s (s aapl) second fiscal quarter earnings results, set to be announced on Tuesday, are not going to be a blowout.

Why do Apple watchers have muted expectations? Foxconn parent company Hon Hai Precision Co. — whose fortunes are understood to be tied to Apple’s since the iPhone maker is its biggest client — saw its quarterly sales drop nearly 20 percent. Cirrus Logic’s results were also down: many investors read into its weak sales for the quarter as a clue that Apple’s ordering of audio chips for iPhones and iPads was lower than expected. LG, which makes displays for Apple, also saw its profits shrink and its orders slow down.

There are some rather obvious reasons for this slowness. For one thing, it’s the wrong season: the sales period it will report is for January through March, during which consumer electronics makers always see slower sales compared to the October through December holiday buying period. (Still, Apple is anticipating revenues between $41 billion and $43 billion, which is just slightly ahead of the $39.2 billion in revenues it recorded in the same quarter last year.) But there’s another big reason, which we saw coming back in October: all of its major products — iPhone, iPad, iPad mini, Macs — were refreshed in the fall, leaving Apple with no major new device release during the January quarter. That means no huge sales bump and no one big sales statistic to brag about.

That said, Apple is still Apple: people are still buying its products, as Verizon’s recent results showed us. But there are a few things to watch out for during earnings tomorrow:

  • Did Apple meet its own expectations? Apple has had a few earnings “misses” in recent months, but it was Wall Street’s expectations that it failed to meet. For the first quarter, look for how close Apple’s results come to its own admittedly less ambitious forecast of gross margins between 37.5 percent and 38.5 percent and revenues between $41 billion and $43 billion.
  • iPad mini versus iPad. Have customers been choosing the smaller, cheaper iPad mini over its larger, pricier tablet brother? If so, that’s going to hit Apple’s profit margins. The company makes more profit on the pricier iPad that starts at $499 than the one that starts at $329.
  • Did they catch up in Mac production? This is a huge question. Mac unit sales were down 22 percent last quarter and the company repeatedly blamed it on supply constraints with the new iMac. CEO Tim Cook promised next quarter would see improved efficiency in production — but has Apple met that goal?
  • Mac sales. More importantly, if Apple did catch up, what kind of demand for them was there? The first three months of this year saw the worst PC shipment results in two decades, according to IDC and Gartner. But it’s hard to get a good idea of how Apple did during the quarter: IDC had Mac shipments down 7.5 percent from a year ago, while Gartner saw the opposite, that Mac sales were up 7.4 percent. We’ll find how who was closer on Tuesday.
  • Dividend talk. Bernstein Research analyst Toni Sacconaghi told his clients that Apple will wait until after earnings to introduce a larger dividend payment for investors. But as we saw with last week’s stock slide, Wall Street is pretty negative about Apple right now. Discussion of a dividend or share buyback on Tuesday (as Morgan Stanley’s Katy Huberty is expecting) would raise analysts’ spirits — and the stock.
  • China. The country is bound to come up tomorrow — sales of devices in the region are massively important to Apple. But listen to hear if Cook or anyone else addresses the recent tensions between Apple and the government and media there.

Earnings results are expected around 1:30 p.m. PT on Tuesday, with a call with investors and analysts scheduled for 2 p.m.

3 Responses to “Without a big product launch, don’t expect too much from Apple’s Q2 earnings tomorrow”

  1. Wish I had a “struggling” company with a $40B turnover! Although I have a Note 2 and don’t think I’ll get an iPhone again anytime soon, I hope Apple does well, competition is good :)

  2. realjjj

    Smartphone sales are not down in Q1, they’ve been pretty flat in the last years and this year should be flat to mildly down (215-225mil units in Q1 , i would say).
    Mac sales were expected to be up this time around.
    Software,itunes,accessories and so on are tracking with the install base not with sales and should be up after xmas.Plus you got Xmas gift cards being used in Q1 and counted as rev.
    Ipad Mini entered Q1 with shortages and Apple had to meet demand and put inventory in the channel.
    The point you should have made instead of seasonality and no launch in Q1 is that Q4 was a launch quarter..

    As for what to watch for
    – margins ,margins ,margins – they got to be at 40%
    – iphone sales – sub 40 mil is not ok , 38 is not too bad ,35 -eh at least it met expectations and sub 35 mil is just bad since it implies some 16% or less smartphone share and not that far from the launch of the iphone 5 – Apple would need to try to learn from what they did wrong with iphone 5 if sales are bad and they might end up with just 15% share this year (assuming just 1 new model this year).
    – outlook – will provide hints about any product updates in the quarter. An ipad 5 launch in a few weeks could add some 2.5B of revenue, a couple of weeks of new iphone sales could add even more.So if they guide flat or almost flat we know they got new itoys on the way.