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5 things to watch for in Apple’s earnings announcement today

Daniel Howley
Technology Editor
5 things to watch for in Apple’s earnings announcement today

Apple (AAPL) is scheduled to announce its quarterly earnings on Tuesday after the markets close.

Analysts are expecting the tech giant to report revenue of $52.0 billion and earnings of $2.00 per share, down from $58.0 billion and $2.33, respectively.

Behind the big drop in revenue and earnings is an expected decline in iPhone sales.

Apple's iPhone sales are expected to dip by at least 17.5 percent in Q2. (image: FactSet).

“Over the past three years on average, the iPhone product segment has accounted for nearly 60% of the total revenues generated by Apple,” FactSet’s John Butters said. “In four of the past five quarters, the iPhone product segment has reported year-over-year revenue growth in excess of 35%. However, last quarter (Q4 2015), the segment reported year-over-year revenue growth of only 7%. For Q1 2016, the segment is projected to report a year-over-year revenue decline of -18%.”

Naturally we’re going to have a number of other questions about Apple’s performance. But these are the ones we’ll be looking at the closest.

What were iPhone 6s and 6s Plus sales really like?

Apple releases its iPhones in tick-tock yearly cycles. During tick years, Apple unveils a numbered iPhone such as the 4, 5, or 6. Those tend to get new designs and slight feature updates.

During the subsequent tock years, the company debuts its s-series iPhones such as the iPhone 4s, iPhone 5s, and last year’s iPhone 6s. S-series iPhones usually look similar to their numbered predecessors, but come with major technology improvements like fingerprint readers and upgraded cameras.

The vast majority of Apple's revenue comes from iPhone sales. Will Apple have to report a loss?

Apple’s sales in the U.S. hit their peak in the final three months of the year thanks to the holiday shopping season, and fall off in the first three months of the new year. Couple that with the fact that the iPhone 6 was an absolutely sales monster and that we’re already hearing talk of the iPhone 7, and sales of the 6s and 6s Plus could take quite a hit.

Has the iPhone SE been a sales winner?

Apple introduced the iPhone SE in March as a way to provide fans of smaller handsets like the 4-inch iPhone 5s with a more modern device. And with a relatively low starting price of $400, the SE would seem to be a solid purchase for first-time smartphone buyers.

But unlike most iPhone launches, the SE’s debut saw little fanfare. That’s likely a result of the fact that the handset is essentially an iPhone 6s crammed into the body of an iPhone 5s. There was nothing truly new about the phone, which could have hurt its appeal in consumers’ eyes.
That said the handset’s low cost could make it an attractive buy in emerging markets. Either way, it will be interesting to see how successful the phone has been in its first month on the market.

How is Apple performing in China?

With its massive population and burgeoning middle class, China is one of the most important markets for Apple.

In the first-quarter of 2016, CEO Tim Cook told investors that his company saw 14 percent year-over-year growth in the country. And as one of the world’s fastest growing smartphone markets, so it behooves Apple to get as much out of the region as possible.

But the iPhone is facing increasingly stiff competition from homegrown Chinese smartphone makers including Xiaomi and Huawei.

In addition to growing competition UBS analyst Steven Milunovich says Apple could face issues if the Chinese government chooses to favor domestic companies over outside sources like Apple. This threat isn't out of the realm of possibility, either, as Milunovich points out that IBM, HP, and Cisco have seen declining sales as the government has instead turned toward Lenovo and Huawei.

Seeing as how the vast majority of Apple’s revenue comes from iPhone sales, and that the Chinese market isn’t nearly as saturated with smartphones as the U.S. market, learning how many iPhones were sold in China in the second-quarter of 2016 can give us a better idea as to the company’s long-term health.

How many Apple Watches have been sold?

According to Cook, the Q1 of 2016 was a banner quarter for Apple Watch sales. Unfortunately, that doesn’t mean very much when we don’t know exactly how many units the company actually sold. According to The Wall Street Journal, though, analysts say Apple sold more Apple Watches in the product's first year than the company sold iPhone's in the smartphone's first year of availability.

Apple is unlikely to give us a definite number of Apple Watches sold.

In fact, as The Journal points out, research firm IDC says the Apple Watch sales accounted for 61 percent of the total smartwatch market in 2015.

Then, however, there are the ever-growing number of stories by tech reviewers and experts saying they’re ditching their Apple Watches after having them for a few months. So is the Watch a winner, or has it already lost its luster?

Has the smaller iPad Pro helped iPad sales?

Apple’s iPad sales have been falling off a cliff for quite some time now. That’s likely because people simply don’t upgrade their tablets as often as they upgrade their smartphones. Not to mention the fact that bigger-screen handsets like the iPhone 6s are eating into tablet sales.

We're hoping to get some information on whether the iPad Pro helped improved iPad sales.

When Apple introduced the low-cost iPhone SE in March, it also rolled out its new iPad Pro 9.7-inch. The same size and weight as the iPad Air 2, the Pro promised the same kind of performance and capabilities as the 12.9-inch iPad Pro in a smaller, more manageable package.

While the first Pro received overwhelmingly positive reviews from critics, it didn’t do much to turn around the decline Apple’s declining iPad sales. Will the smaller iPad Pro change the company’s fortune? We’ll have to wait and see.

Email Daniel at dhowley@yahoo-inc.com; follow him on Twitter at @DanielHowley.