Apple (AAPL -0.35%) has generated a monstrous amount of profit for its shareholders over the years, in large part thanks to its iPhone franchise. For years, the iPhone was seemingly an unstoppable growth machine, delivering incredible growth.
The current iPhone product cycle is, however, going poorly for the company. Apple had to revise down its guidance for the first quarter of its fiscal 2019 as iPhone sales, particularly in China, fell way short of expectations. The company's guidance for the second quarter wasn't great, either.
Image source: Apple.
Apple is set to report its earnings results for the second quarter and issue its guidance for the subsequent quarter on April 30. In my view, for Apple shares to continue rallying as they have from the lows set between December and January, the company will need to provide investors some convincing evidence that the iPhone business is finding a bottom.
Here's what I'll be listening for on the company's upcoming earnings call.
iPhone trends in China
Although Apple seemed to blame the macroeconomic environment and the trade tensions between the United States and China for its iPhone woes, it seems clear that the company is also suffering from meaningful market share losses in the region, too.
Apple has reportedly tried to stem those share losses in the region by cutting prices. Price cuts should lead to reductions in the company's iPhone average selling prices and per-device profitability, but the goal of such a move is to try to more than compensate for those reductions by moving greater volume.
In addition, an increasingly important part of Apple's overall story is its services business, which is dependent on the size of the company's installed base. Taking a longer-term view, sacrificing near-term iPhone revenue and even profitability to bring additional users into the ecosystem and monetizing them over time might be the right strategy.
I'll be watching closely to see what both CEO Tim Cook and CFO Luca Maestri have to say about how Apple's iPhone business is trending in China.
iPhone upgrade rates
Another issue Cook cited on the company's earnings call back in January was that iPhone owners were simply not upgrading their devices at the rates they once did. The executive explained that the company would be taking actions to try to spur upgrades.
"One such initiative is making it simple to trade in an iPhone in our stores and raising awareness of this opportunity," Cook said.
He also explained that the company also began "making it easier for people to pay for their phones over time with installment payments" and that "we're working on rolling out this program to more geographies as soon as we can."
On Apple's April 30 earnings call, I'll be looking for some insight into how these initiatives have been working out and what the company's plans are to build on those efforts in the years ahead.
Signs of life for the iPhone
Apple will need to make a convincing case that its iPhone business isn't in free-fall. If the company can do that, that could drive incremental investor confidence in Apple's longer-term prospects and ultimately give the share price a boost.
However, if Apple's results show an iPhone business that's in decline with no end in sight, then the shares could give back a significant portion of the gains they've made over the past few months.
