Apple will unveil its third-quarter earnings tomorrow, and while the numbers probably won’t 'wow' investors they’ll mark the lead-in to a bigger, potentially-more profitable fall quarter when Apple is expected to announce two different iPhones with bigger screens and an iWatch.
For all the criticisms Apple has faced over its pace of innovation, business looks enviably steady. Arch rival Samsung announced a 10% fall in sales in the last quarter and its lowest operating profit in two years, blaming tough competition from Chinese manufacturers and sluggish demand in saturated smartphone markets.
Yet Apple may say iPhone sales actually grew 14%, year-over-year, according to Piper Jaffray analyst Gene Munster, who estimates Apple sold 35-36 million iPhones in this last quarter.
One way Apple may have counterbalanced Samsung’s market-saturation problem is by inking more carrier partnerships in the last year, according to analysts at Deutsche Bank. Its biggest new partnership is with China Mobile, which has more than 790 million subscribers.
Apple’s most important customers are increasingly Chinese. China is the largest smartphone market in the world and will likely account for a third of the 1.8 billion smartphones expected to ship by 2018, according to new research from IDC. Mobile phone growth in China is expected to slow, but given the size of the market it looks set to outpace that of the U.S. and Western Europe for the time being at least.
iPhones accounts for the vast majority of Apple’s earnings, which is why investors may be willing to overlook weaker sales of the iPad. Apple sold 16.35 million iPads in this last March quarter, a 16% fall from last year and well below analysts expectations. Piper Jaffray’s Munster expects sales of Apple’s tablet device to be flat this past quarter, with 14-15 million iPads sold.
Instead, investors will be closely watching Apple’s guidance for its forthcoming September quarter, which could give clues on the timing of the next iPhone, says Munster. He expects Apple to forecast fall-quarter revenues of $40.4 billion, with gross margins of 37.5%.
