Apple (AAPL -0.05%) has now wrapped up its two fall product events, and the company's overall lineup heading into the holiday shopping season looks incredibly strong. The refreshed MacBook Air promises to be a key volume driver, as that notebook has long been one of Apple's most popular models. The redesigned Apple Watch Series 4 that launched last month and the new iPad Pros will also likely be hot gifts.
Amid the flurry of product news, the Mac maker is preparing to report fiscal fourth-quarter earnings after market close on Thursday. Here's the what investors should look for.
The new MacBook Air. Image source: Apple.
Focus on services for the September quarter
The fiscal fourth quarter is seasonally slow for Apple, in part because most consumers have now become accustomed to the company releasing new products in the fall, delaying purchasing decisions. This year, the iPhone XS and XS Max launched with just about a week left in the fiscal year, which ended on Sept. 29, 2018.
The iPhone XR, which is priced to better appeal to mainstream consumers and expected to drive more unit volumes, didn't launch until this month -- after the fiscal year had already closed.
iPhone XR launched last week. Image source: Apple.
That's why the fiscal fourth-quarter results will be relatively uneventful, at least around the core iPhone business. Instead, investors should continue focusing on Apple's services business, which is largely unaffected by seasonal factors. Apple's services business has been adding around 30 million paid subscriptions every quarter like clockwork over the past three quarters, a rate that is accelerating over time.
Data source: Apple. Chart by author. Fiscal quarters shown.
For what it's worth, Apple's guidance issued in July calls for revenue of $60 billion to $62 billion, representing 16% growth at the midpoint. That would be the fifth consecutive quarter of double-digit revenue growth.
Focus on guidance for the December quarter
The most important thing for investors to home in on will be guidance for the fiscal first quarter, as that forecast will factor in the full impact of all of the new gadgets it has unveiled over the past couple of months. After a couple years challenging the law of large numbers, which suggests that enormous businesses struggle to put up or maintain strong growth rates, Apple's revenue soared 13% to a mind-boggling $88.3 billion in the December quarter of last year. Any outlook that calls for double-digit growth would approach $100 billion (analysts are modeling for $92.9 billion).
Gross margin outlook will also be important. Apple will enjoy the benefit of operating leverage as revenue ramps, but costs related to redesigning so many products will also rise. CFO Luca Maestri has expressed optimism that memory pricing is starting to improve, saying earlier this year that he hopes DRAM prices will peak near the end of 2018.
