Apple (NASDAQ:AAPL) will be reporting earnings on Tuesday, July 21, after official market hours. An earnings report from Apple is a crucial market event attracting tons of attention from Wall Street and the specialized media, so investors may want to be prepared in advance to know where to look and what to expect.
Wall Street analysts are on average forecasting $49.08 billion in sales during the June quarter, a growth rate of 31.1% from the same period in 2014. Earnings per share are expected to come in at $1.79, an increase of almost 40% year over year.
Below the headline numbers, investors may want to pay close attention to iPhone sales, performance in China, and new products and services such as Apple Watch and Apple Music.
All eyes on the iPhone
Apple made nearly 70% of total revenues from the iPhone segment during the last quarter, so the product is clearly the main driver when it comes to both sales and earnings. According to data compiled by Fortune, analysts are on average forecasting 49.4 million iPhone units for the third quarter of fiscal 2015. That number would represent a big 40.4% increase from 35.2 million devices during the same period last year.
There is a considerable degree of dispersion when it comes to iPhone sales estimations. The most optimistic forecast comes from Credit Suisse, with 56.28 million units. On the other hand, the analysts at Oppenheimer calculate that Apple sold only 43.5 million devices during the quarter. This means the highest forecast is 15% above the average, while the most pessimistic estimation is 12% below consensus.
In addition to sales units, it´s important to watch how the average sales price, or ASP, is evolving in the iPhone division. The iPhone 6 and iPhone 6 Plus models are selling for higher prices than previous models, and Apple reported a $62 year-over-year ASP increase during the quarter which ended in March, to $659 per unit.
Higher prices have a direct positive impact on profit margins, and they also say a lot about Apple's brand power and product differentiation. Most smartphone manufacturers are keeping their prices as low as possible to sustain market share in an aggressively challenging and competitive environment, and it takes a particularly strong business to deliver increasing prices when most other industry players are going in the opposite direction.
How are things in China?
China is becoming an increasingly important market for Apple. Nearly 29% of total revenue came from the Greater China region during the March quarter. Not only that, but sales in this key region also grew 71% year over year, far outpacing the 27% increase in global revenue during the period.
The company is also accelerating its retail-store expansion in the country. Apple ended the March quarter with 21 retail stores in 11 cities, and management is planning to nearly double that base to 40 units in Greater China by the middle of next year. Apple stores are not only about product distribution; marketing and face-to-face contact with customers are also important components of the overall experience, so Apple is clearly betting on China for growth.
The Chinese economy has been quite unstable lately, and this is creating some concerns about the possibility of an economic slowdown in the country and its potential impact on Apple's overall revenues and growth rates. Wall Street analysts will probably have a lot of questions for Apple management about the health of the Chinese economy and key demand trends for Apple in the country.
Apple Watch and Apple Music
The coming earnings release will be the first time investors will have a chance to look at sales numbers from recent launches such as Apple Watch and Apple Music. We still don't know how much information Apple is going to disclose about these initiatives, and they most probably will have a relatively small impact in the overall revenue mix.
However, new products and services can be important from a qualitative point of view. Over time, it would be a great thing to see Apple diversifying its revenue base away from the iPhone, as this would substantially reduce the risks in case there is a slowdown in overall demand growth in the smartphone industry.
Also, Apple is a consumer-oriented company. If new launches such as Apple Watch and Apple Music resonate well among consumers, this would prove that Apple still has what it takes to continue delivering successful innovations in different industries.