It's not often that you see this, but Apple's (AAPL -2.63%) back is to the wall.
For the first time in more than a decade, analysts see the consumer tech tastemaker posting a year-over-year decline in profitability. Wall Street's eyeing a 3% decline in earnings on an 18% advance in revenue.
Get used to it. These same pros see profitability slipping 4% and net revenue decelerating to just 17% growth for the new fiscal quarter that began earlier this month.
It would be easy to call these Wall Street cats pessimistic, but these same analysts actually overestimated Apple's earnings in each of the past two quarters. It's also against this backdrop that Verizon (VZ -2.00%) reported this morning that wireless margins will improve in 2013.
Will that be through subsidy cuts that will challenge Apple's margins, or is Verizon going to steer customers to higher-margin Android smartphones? It doesn't look promising either way.
However, Apple can certainly do plenty to shore up its sluggish stock. Shares are off nearly 30% since peaking four months ago, so let's go over some of the things that Apple could say tomorrow afternoon that would send the stock higher.
1. We are increasing our share buyback efforts.
Apple announced a $10 billion share repurchase authorization back in March that was supposed to kick in when this fiscal year began in October.
Apple is loaded. It closed out its fiscal fourth quarter with more than $121 million in cash and marketable securities. A lot of that is stranded overseas, but Apple can certainly afford to offset selling pressure by ramping up its repurchases. The move would also help improve profitability on a per-share basis.
2. We are moving away from annual iPhone update cycles.
One of the things holding Apple back as it loses ground to Google's (GOOGL -1.45%) Android is that new iPhones have only come out once a year.
The market doesn't care anymore. Verizon conceded this morning that just half of the holiday quarter's iPhone sales were for the new iPhone 5. It could be that the market is down to the price-conscious adopters looking to shave $100 by going with an iPhone 4S or $200 by going with an iPhone 4. It could be that the iPhone 5 forces existing customers into costly 4G LTE tiered data plans. It could also be that the iPhone 5 just doesn't have some of the features coming out in the latest Android handsets.
There's already chatter of Samsung hosting a press event in two months to introduce what will probably be the Galaxy S IV. Rumors claim that the screen will be even bigger, complete with a pen stylus and an "unbreakable" screen. Let's dismiss most of this to wishful thinking. Apple still can't afford to wait until September or October to raise the bar. The game is changing too quickly for annual updates.
3. We will be entering new product categories later this year.
Apple would never come right out and say that it's entering the HDTV market or introducing an Apple wristwatch. It stages media events for those rollouts.
However, Apple's back is really up against the wall here. Analysts see iPod sales falling, Mac sales flat, and margins taking a hit on iPads and iPhones. It needs to excite investors again by pointing to untapped potential, and a full-blown TV is the most logical introduction to make that happen.
Apple doesn't have to get specific, and it won't. However, just the mere promise of entering at least one new product category either by the end of this fiscal year or by the end of the calendar year -- to take advantage of the holiday season -- would help.
4. China is about to become a bigger market for us.
There's been a colossal void in Apple's push into China. China Mobile (CHL) -- the country's largest carrier with 710.3 million customers -- doesn't officially offer the iPhone.
Network compatibility and thornier subsidy issues have kept China Mobile out. Apple can't let that continue, and reports indicate that Apple CEO Tim Cook did meet with China Mobile on a trip to there earlier this month.
Most of China Mobile's customers are still on traditional feature phones. If Apple doesn't find a way to get more economical iPhone devices into the hands of China Mobile customers, their migration will continue to be to Android.
5. Music still matters to Apple.
The iPod peaked in sales three years ago, though the iPhone and iPad have kept iTunes Music Store growing. Reports late last year indicated that Apple was going to challenge Pandora by introducing a streaming music service. It's been presumably negotiating with the major labels.
The chatter has resulted in Pandora's stock taking a hit, but it has done little to boost Apple.
No one should expect Apple to make a streaming music announcement tomorrow. However, it can suggest that big things are on the horizon when it comes to music, enhancing its iTunes Match cloud service that's too limited and too expensive in an ad-supported world. After Ping's failure, Apple isn't going to get too many more chances to raise the bar in digital music. It needs to act sooner rather than later.
None of this will matter if Apple delivers a blowout quarter with rosy guidance, but even optimists don't necessarily see that happening.
Apple will need to earn its way back to last year's highs, and it's going to have to excite the market before the Apple magic is gone.