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Apple, Inc. Earnings: 3 Big Questions for Tim Cook

By Daniel Sparks - Jan 22, 2016 at 1:55PM

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With iPhone sales potentially leveling off during Apple's holiday quarter compared to the year-ago quarter, investors have some key concerns about the company's future.

While Apple's (AAPL 2.14%) iPhone sales and its guidance for Q2 will probably receive the most attention in the media after the company reports results for its first fiscal quarter of 2016 next week, investors shouldn't overlook the company's earnings call following the report. While Apple is known for its secrecy when it comes to future product plans, Apple CEO Tim Cook does often take the time during the call to discuss important topics, such a the long-term potential for particular product categories and analysis of growth and opportunities in different geographic segments.

Apple CEO Tim Cook. Image source: Apple.

Here are three questions that Cook may be asked during the call, along with some relevant background.

Will iPhone sales continue to grow?
Analysts, on average, are expecting Apple's iPhone sales to increase just 2.8% from the year-ago quarter in Q1. While we'll find out exactly how many iPhones Apple was able to deliver during the holiday quarter when Apple reports results on Tuesday, chances are the growth won't be impressive, as the company only guided for low-single-digit percentage growth in total revenue.

This slow growth is a concerning for some investors, as it's a significant deceleration from recent growth. Year-over-year growth in iPhone sales in the prior quarter was 22%.

Does Cook believe this slowdown is only temporary? Or could 2015 be the year of peak iPhone sales for Apple?

Could Apple Watch evolve into a major product for Apple?
Currently, Apple's newest product category -- the Apple Watch -- is still too small to matter. The company likely generated between $1.2 and $1.5 billion in revenue from the device during its most recent quarter. This represents just about 2.5% of the company's revenue.

Apple Watch. Image source: Apple.

Does Cook see the Apple Watch turning into a major product category for the company, perhaps even surpassing its Mac and iPad businesses, which now account for 13% and 8% of the company's total revenue, respectively?

Furthermore, if Apple Watch sales do take off, does Apple see the product being a major contributor to the company's bottom line? Or, in other words: Could the Apple Watch eventually boast profit margins that rival the iPhone?

Will China remain a catalyst?
China was a key catalyst for Apple in fiscal 2015. Year-over-year revenue attributable to Apple's "Greater China" segment in Q4, for instance, was up 99% from the year-ago quarter. And Apple said in its fourth-quarter earnings call that iPhone sales in mainland China soared 120% from the year-ago quarter.

Keep in mind that Apple's Greater China segment is not only growing rapidly, but it also represents a huge chunk of Apple's business at 24% of revenue. So, the rapid growth Apple has been witnessing in China recently truly does represent a critical catalyst for the company.

Is Cook still betting China represents a growth opportunity for the company?

In the company's last earnings call, Cook seemed confident China would remain a key growth driver over the long haul. But an update on his thoughts on the potential for China now that the company is deeper into its latest iPhone cycle could yield new perspective.

Apple will release its first-quarter results after market close on Tuesday. Stay tuned at The Motley Fool for analysis of the results, as well as for a close look at important takeaways from the company's earnings call.

Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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