You can find all kinds of predictions about Apple's (Nasdaq: AAPL ) third-quarter earnings from not only Wall Street analysts but also independent bloggers. However, I think investors are best served by following a pretty simple strategy: Watch iPad sales.
iPhone sales will almost certainly be down from last quarter, when they hit 35 million. The explanations for this are pretty simple. First, Q2 2012 featured huge overseas launches, especially in China, where the iPhone hit during the Chinese New Year. To put the Chinese New Year into perspective, $64 billion was spent during the holiday during 2011. As a comparison, the week before Christmas saw $44 billion in retail spending in the U.S. It's a big holiday.
The second explanation is that consumers are already holding off on buying a phone, hoping to upgrade to the next iPhone in a few short months. Recent surveys have shown record levels of pent-up demand for the next iPhone, and reports are leaking that production has begun. With the iPhone 4S having been unveiled last October, expectations are for a year-long wait for the iPhone 5. Keep in mind, the anticipation of an upcoming iPhone refresh will also lead to lower guidance next quarter. This is becoming the usual seasonality at Apple, with iPhone sales declining into the release of the next model, so I don't think Apple will be punished too hard if iPhone sales fall south of 30 million.
However, while the iPhone itself might be slowing down, iPads should heat up. In fact, iPad sales are the one figure investors need to watch in Apple's Q3 earnings release. Last year, iPad sales totaled about 9.2 million units. This year, there are estimates all the way up to 25 million. That number seems a bit high to me. For one, we've seen the effect of emerging markets on iPhone sales and the amount of revenue Apple is taking in from China. However, the company didn't release the new iPad in Brazil until the quarter was half over. Russia didn't get the iPad until the quarter was nearly out, and China didn't see the product at all in Q3. It was on sale in most developed countries throughout the quarter.
I think that will hold the iPad back from absolutely mind-boggling sales. Instead, Apple will have to settle for something in the "moderately mind-boggling" range -- perhaps 18 million to 23 million. The exact number of iPad sales and Apple's Q3 earnings aren't nearly so important for long-term investors as the momentum of the iPad's business and what that means for Apple going forward. Posting 18 million-plus iPads shows just how quickly the unit is becoming a true game-changer and disrupting the PC industry. It also further entrenches Apple before new high-end challengers like Windows 8 tablets hit, along with lower-end offerings already in play from Google (Nasdaq: GOOG ) and Amazon's (Nasdaq: AMZN ) Kindle Fire. As big as Q3 iPad sales will look, there are trends -- such as applying the iPad as a business tool and expanding its global footprint -- that leave the product poised for continuing growth in 2012 and beyond.
So there you have it: If you're a long-term Apple investor, iPhone sales this quarter won't give a good indication of Apple's long-term smartphone strength as consumers hold out for the iPhone 5. We'll get a better look at iPhones again in 2013. Instead, iPads are important for today's earnings call. If Apple delivers in that upper range, it will prove the iPad's is disruptive force in the PC market and its continuing impact on Apple's bottom line. I don't think you should get too hung up on the results of a single quarter's sales, but all the same, don't ignore any positive iPad results. They will be good -- likely, mind-boggling good.
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