Analysts Looking to September Guidance for 10th Anniversary iPhone Status -- Earnings Preview

By Tripp Mickle Features Dow Jones Newswires

Apple Inc. is scheduled to report results for its fiscal third quarter, which ended July 1, after the market closes on Tuesday. Here's what you need to know.

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EARNINGS FORECAST: Apple is expected to earn $1.57 a share, according to the consensus of analysts surveyed by Thomson Reuters, compared with $1.42 a share the year before. The company hasn't provided earnings guidance for the quarter, but in May said it expects gross margin to be between 37.5% and 38.5% in the quarter.

REVENUE FORECAST: Revenue of $44.89 billion is expected by analysts, compared with $42.36 billion reported a year earlier. In May, Apple said it expected revenue to be between $43.5 billion and $45.5 billion in the quarter.

WHAT TO WATCH

T OMORROW NEVER KNOWS: In May, Apple Chief Executive Tim Cook said anticipation for a new iPhone -- details of which Apple hasn't discussed publicly -- had begun to hurt sales of the device. With news around a new iPhone swelling since then, the question for the June quarter is how much sales stagnated as customers put off buying new handsets. As a result, Apple's quarterly revenue likely won't come close to the record of $49.61 billion it set for the period two years ago. But analysts aren't worried. They view each phone that goes unsold as a potential sale of a higher-priced phone in future quarters.

WAITING IS THE HARDEST PART: Apple observers are eagerly awaiting the company's guidance for the September quarter. Rumors are rampant that the expected 10th anniversary iPhone has run into production problems and could be delayed several weeks, which would mean initial sales may not come until Apple's December quarter. While Mr. Cook won't say anything about future devices during his talk with analysts, the company's revenue guidance will indicate whether or not a new device will hit stores in late September as usual. A prediction of more than $51 billion -- Apple's September quarter record in fiscal 2015 -- would indicate the phone will be on time and the company is bullish about its sales prospects.

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NOT DARK YET: China continues to be Apple's Achilles' heel. The Greater China market, which includes Hong Kong and Taiwan, was the only region to report a sales decline in the first half of the fiscal year. Revenue fell 13% in the period, after a 6.4% drop in the same period the year before. Mr. Cook remains optimistic about Apple's prospects in the market, but the company hasn't been able to turn the corner there. Analysts surveyed by FactSet expect an 8.3% decline in revenue in Greater China from a year before. While that is better than the double-digit declines of the past two quarters, it comes against a relatively weak comparison. Sales in China for the same period the year before declined 33%. The performance has led many skeptical investors to ask if Apple has lost its edge. The company recently named its first head of China, Isabel Ge Mahe, and has worked to make China-specific changes to its next mobile operating system in hopes it can regain momentum ther e.

WALK THE LINE: Few variables influence Apple's stock more than its gross margin guidance. The statistic, a closely watched measure of profitability reflecting the percentage of revenue that remains after manufacturing costs, is getting special attention now as anticipation builds for a new phone. Analysts expect the company to project margins of 38% for the September quarter. With memory prices high and expectations that Apple is putting new technology into the coming iPhone, however, analysts say that Apple could project lower margins, creating worries about future iPhones.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

August 01, 2017 06:34 ET (10:34 GMT)