Apple (AAPL -0.12%) is scheduled to report its fiscal first-quarter results on Jan. 29. The company has already provided preliminary estimates on some key figures from the quarter, including:

  • Total revenue of $84 billion.
  • A gross margin of about 38%.
  • Services revenue of more than $10.8 billion.

But one major question remains: Will Apple guide for another quarter of declining revenue?

Apple marketing chief Phil Schiller on stage

Apple marketing chief Phil Schiller reveals the iPhone XR. Image source: Apple.

Why investors should watch guidance

The tech stock's growth story has come into question recently, as Apple's latest iPhone lineup is having trouble living up to tough comparisons in the year-ago quarter. The Street's concerns about Apple's growth potential are particularly evident in the stock's cheap valuation: Apple shares trade at just 13 times earnings.

As CEO Tim Cook said in the company's preliminary update on its fiscal first-quarter results, the tech giant's top line declined on a year-over-year basis. Revenue for the period is expected to come in around $84 billion, down from $88.3 billion in the year-ago quarter -- and Apple is blaming the drop on a shortfall in iPhone revenue. Notably, this would mark the company's first year-over-year revenue decline since the fourth quarter of fiscal 2016. It's no wonder, therefore, that surprising news of falling revenue in Q1 sparked a sell-off in the stock.

The question now, however, is whether a trend of year-over-year declines will persist for yet another quarter or even longer. Investors will get a better idea of how bad Apple's headwinds are when they see management's revenue guidance for its fiscal second quarter.

What to look for

While there's no way to pinpoint what Apple management will guide for when it releases its earnings later this month, the number to beat will be $61.1 billion. This is the revenue Apple posted in its second quarter of fiscal 2018. Guidance for anything below this figure would mean that management expects another quarter of falling revenue on a year-over-year basis.

Fortunately, the iPhone is typically less important to Apple's fiscal second-quarter results than it is to its fiscal first-quarter results. Case in point: In Apple's first quarter of fiscal 2018, iPhone accounted for a whopping 70% of total revenue during the period, but made up 62% of revenue in Apple's fiscal second quarter of 2018. With iPhone being seasonally less important to Apple's overall results in its fiscal second quarter, the company's smaller but faster-growing segments -- services and "other products" -- could be enough to help prevent yet another instance of declining revenue even if iPhone revenue falls slightly.

Ultimately, however, forecasting Apple's quarterly revenue without management's guidance is simply a difficult task. This is why investors will want to check in on management's revenue guidance for its fiscal second quarter.

Check out the latest Apple earnings call transcript.