Your Apple Earnings Watch List for Q3 (AAPL)

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apple earnings - Your Apple Earnings Watch List for Q3 (AAPL)

Source: via Apple

Apple Inc. (NASDAQ:AAPL) reports its fiscal third-quarter earnings on July 26, and CEO Tim Cook had better get it right this time. In April, Apple earnings included the company’s first revenue drop in 13 years. Meanwhile, AAPL stock dropped 14%, and it’s still struggling to find a footing. Even Carl Icahn sold his shares.

Your Apple Earnings Watch List for Q3 (AAPL)

So what matters this time as Apple earnings roll around? According to Wall Street, there are three pivotal issues to watch for if you’re an AAPL shareholder … and they’re all related to the iPhone.

Apple Earnings Watch List: iPhone 7

The internet has lit up this week with pictures of what appear to be three new iPhones for September. KGI Securities analyst Ming-Chi Kuo (aka the best Apple analyst on the planet, according to Business Insider) tells investors the all-new iPhone Pro will feature a dual-lens camera with 3D and high-resolution zoom capability. The Pro likely will be the same size as the iPhone Plus, but may also feature a Smart Connector to allow peripheral plug-ins and expanded memory. Also will offer a third iPhone with the same dimensions as the current iPhone 6.

Tim Cook would be wise to focus on the iPhone 7 or any other new iPhones rather than explaining away another lackluster Apple earnings report. Analysts currently forecast earnings of $1.39 per share, a decline of 25% compared to the year-ago period.

While some will lament the lack of an all-glass case or OLED displays in the upcoming refresh, the new iPhone provides a far better narrative than third-quarter results. Things like 18.4% fewer unit shipments and a $2 billion decline in channel inventories have caused margins to slip about 400 bps to 37%, according to Bloomberg. People appear to have slowed buying ahead of the September refresh. This is not good, but it’s old news.

Again Mr. Cook, focus on the iPhone 7.

Apple Earnings Watch List: Market Share

While AAPL dominates premium smartphone sales in the U.S., globally it ranks No. 2 behind Samsung (OTCMKTS:SSNLF) with just 16.1% of total handset sales, according to IDC. This represents a huge opportunity. Mr. Cook needs to articulate a path for how he intends to capture share. Bloomberg Industries analyst John Butler highlights the mid-priced iPhone SE as an excellent way to tap into demand for a “smaller form-factor iPhone which still meets current specs.”

While premium phones like the iPhone 6 and 6 Plus tend to capture the headlines, they represent less than one-third of total sales. Mid-priced versions, and even stripped-down models, far outsell the pricey iPhone 6 and 6 Plus, especially in emerging markets.

Apple Earnings Watch List: Hit the Road

Mr. Cook’s recent travels abroad attracted a gaggle of press followers, and more importantly produced one highly valuable result: retail access to India. Apple currently sells only 2 million iPhones annually in India. For years it was effectively frozen out of the country by rules that required domestic sourcing. A dinner with Prime Minister Narendra Modi changed that.

Forbes reports that AAPL plans to open stores imminently, and will gain direct access to India’s 1.3 billion people — nearly as many as live in China. China generated $58 billion in sales for Apple last year, or 25.1% of Apple’s revenue. If Apple can turn India into another China, neither last quarter’s belly flop nor next Tuesday’s perfunctory report will matter.

Mr. Cook, tell us about the future.

Adam Johnson is Founder and Author of Bullseye Brief, an investment newsletter that presents thematic and actionable ideas. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @AJInsight.

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