Apple's (NASDAQ:AAPL) fiscal third-quarter earnings report is slated for July 21. The June quarter is generally the company's slowest from a revenue-generation standpoint, as many customers refrain from purchasing the company's signature iPhone and choose to wait until the newest version is available in the fourth fiscal quarter. As such, analysts and investors alike tend to underappreciate the quarter.
However, this earnings report is a little different from years past. One big difference, of course, is the presence of Apple's first new post-Steve Jobs product: Apple Watch. In addition to any news related to Apple Watch's sales figures, here are two other things I'll be looking for when Apple announces its third-quarter earnings.
Non-iPhone revenue performance
In many ways, Apple's performance can best be explained by thinking of the company in terms of two distinct business lines: its iPhone line, and everything else. For the former, things are going really well. For the remainder of the company, however, the past year hasn't been as kind. For a visual perspective, see the following chart:
Over the past two years, Apple has gone from near parity between iPhone and ex-iPhone revenue -- 51.4% of total revenue was attributable to the phone in Q3 2013 -- to the iPhone providing a dominant 69.4% of total revenue last quarter. As such, Apple has gone from a diversified electronics company to a near-pure-play smartphone vendor.
Some of that is due to the tremendous growth of the iPhone, following two consecutive quarters of 50%-plus year-over-year iPhone revenue growth. However, this shift is also due to the comparatively weak performance of the rest of the company, with two consecutive quarters of year-over-year declines, as falling iPad sales have hurt growth.
While I don't expect parity anytime soon, I would like to see Apple's non-iPhone divisions grow. And this quarter, I expect just that, as Apple Watch should lead to increased revenue.
Any updates on Apple Music
While Apple Music numbers should be immaterial for the current quarter, as the service was launched near the end of the quarter and subscribers aren't billed for three months, I'll be listening for any subscriber totals for Apple Music. For the last two fiscal quarters, Apple has reported year-over-year revenue increases of 9% in its Services division (which includes iTunes, the App Store, and Apple Pay). However, Apple's music-related revenue is reportedly on the decline. iTunes digital download sales fell 13% in 2014, according to The Wall Street Journal.
Apple arrives to the streaming-music industry a little late, but it has ambitious goals with its service. Any insight on how the streaming service is performing would be nice to hear. It's entirely possible that Apple will keep this number close to the vest. But if Apple is happy with subscriber figures, look for Tim Cook to take a victory lap during the conference call.
Apple Watch ... will we get any data?
Plan to get out your Sherlock Holmes magnifying glasses here, because it seems Apple will keep Apple Watch figures close to the vest, too. Last year, Cook said Apple wouldn't release separate revenue figures for the watch, instead reporting Apple Watch revenue in its catch-all "other products" category with items like the iPod, Apple TV, and Beats headphones. However, it's possible for the CEO to address sales and give guidance on the product going forward.
But even if no specific figures are given, the baseline numbers in this category are such that if the Watch is a blowout hit, it should be apparent. For example, many analysts estimate that Apple may have sold 4 million watch units last quarter. If Slice Intelligence's average-selling-price estimate of roughly $500 per watch is correct, the watch would gross $2 billion in the quarter. For a comparison, in Q2, Apple booked $1.7 billion total in the category. So look to that category for clues about Apple Watch performance.