Apple's (NASDAQ:AAPL) first fiscal quarter of 2018 is going to be huge. Management guided for a record $84 to $87 billion in quarterly revenue, up a notable 7% to 11% compared to Apple's first fiscal quarter of 2017. The guidance reflects management's optimistic outlook, fueled by the launch of its latest iPhones.
While it's always possible that the current quarter could bring about some surprises, Apple's guidance is typically a good barometer of what to expect from the quarter. Therefore, since investors already have a good idea of what to expect from Q1, many investors -- including myself -- will be paying close attention to Apple's guidance for Q2.
Here's a preview of what to expect from Apple's guidance for its second quarter.
Why guidance is key
Following the launch of Apple's most robust lineup of new iPhones ever -- the iPhone 8, 8 Plus, and iPhone X -- investors likely have their hopes up for meaningful growth in iPhone sales in 2018.
The case for strong growth in iPhone sales in 2018 gets even better when investors consider that Apple's iPhone X represented a major overhaul to the iPhone design. The last time Apple introduced iPhones with major form-factor changes was the 2014 launch of the iPhone 6 and iPhone 6 Plus. The two new phones not only represented a departure from Apple's flat-edged iPhone 5s, but they brought significantly larger displays to the iPhone lineup. The iPhone 6 and 6 Plus' displays measured 4.7-inch and 5-5-inch, respectively, compared to the iPhone 5s' much-smaller 4-inch display size. There turned out to be astounding pent-up demand for the new devices. Apple proceeded to benefit from a monstrous upgrade cycle, driving a 37% year-over-year increase in iPhone unit sales during fiscal 2015.
Since the iPhone's overall form factor has remained the same between the iPhone 6 and 6 Plus' launch in late 2014 up until the iPhone X's launch in November of 2017, investors are likely hoping there's pent-up demand again for an iPhone with a design overhaul. Indeed, investors may be looking for Apple to benefit from strong growth in iPhone sales not just during the holiday quarter, but throughout the entire fiscal year.
Apple's guidance for its second fiscal quarter of 2018, or the first calendar quarter of 2018, will provide some insight into whether or not Apple's newest iPhones can drive sustained growth in the important segment.
Apple's business, of course, is made up of more than iPhone. But the important product segment accounts for 62% of Apple's total revenue. So, quarterly guidance for total revenue provides insight into the expected trajectory for iPhone revenue.
What to look for
For Apple's second fiscal quarter of 2018, I'll be looking for management to guide for accelerating revenue growth compared to the 7% to 11% year over year revenue growth it guided for in Q1. Since the iPhone X wasn't launched until over a month into the first quarter -- about a month and a half later than the usual launch timeframe for flagship iPhones -- this could help year-over-year comparisons in Q2, as it represents the first full quarter of the new iPhone's availability.
Analysts, on average, are expecting Apple's second-quarter revenue to rise an impressive 28.7% year over year to about $68 billion. On a similar note, I'll be looking for Apple to guide for second-quarter revenue between $65 billion and $70 billion, up from revenue of about $53 billion in the second fiscal quarter of 2017. In other words, I'll be looking for management to guide for some massive growth.
Of course, with expectations for such steep growth, the stakes are high. This is why Apple's guidance for its second quarter is so important.
Apple is scheduled to report its second-quarter results after market close on Thursday, Feb. 1.
Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.