AAPL Apple Inc

By Tripp Mickle 

Apple Inc. is scheduled to report results for its fiscal second quarter after the market closes Tuesday. Here's what you need to know.

EARNINGS FORECAST: Analysts on average expect profit of $2.36 a share, according to a survey by Refinitiv. Apple hasn't provided profit guidance for the quarter but in January said it expected a gross margin of between 37% and 38%.

REVENUE FORECAST: Analysts expect $57.37 billion, according to Refinitiv, compared with $61.14 billion a year earlier. In January, Apple said it expected revenue of between $55 billion and $59 billion for the quarter.

WHAT TO WATCH:

They All Ask for You: The picture hasn't gotten any prettier for Apple's core iPhone business. Analysts estimate Apple sold about 10 million fewer iPhones in the March quarter than a year ago, contributing to a projected 18% decline in sales of the smartphone. The downturn -- first flagged by Chief Executive Tim Cook in a January letter slashing first-quarter sales guidance -- is largely appreciated by investors at this point, and few analysts or investors expect improvement in the iPhone business this year.

With people holding on to their iPhones for longer, the replacement-cycle period is expected to hit four years by this December, up from three years in 2018, according to Morgan Stanley. A four-year window before upgrading to a new iPhone would be on par with the time between upgrades in the already-mature PC market, according to Morgan Stanley.

On the brighter side, Apple struck a supply agreement this month with Qualcomm Inc. after both sides dropped all litigation between the two. Analysts don't expect the first iPhones with 5G modem chips until 2020. During his call with analysts, Mr. Cook could highlight that agreement in an effort to give Wall Street a reason for optimism about the iPhone's future.

Right Place, Wrong Time: Rockiness in China, the world's No. 2 economy behind the U.S., continues to hobble companies. Daimler AG and Intel Corp. last week blamed weak sales there for poor results in the March quarter. Apple, which depends on China for about a fifth of its revenue, is expected to do the same. China's smartphone market is in full recession, and foreign manufacturers like Apple are taking a beating. The Chinese government reported smartphone shipments fell 20% in February from a year earlier to 14.5 million units and that overseas handsets -- largely from Apple and Samsung -- fell 47% to 1.4 million from a year earlier. A weakening yuan has exacerbated the problem. In January, Apple responded by cutting the cost of its lowest-priced handset, the iPhone XR, in China to negate the effect of currency changes. The move has helped sales, analysts say. Apple's share of the active smartphone user base in China increased in March, according to Morgan Stanley.

Sunny Side of the Street: Apple continues to tout its fast-growing services business as an antidote to slowing iPhone sales. In March, the company held its first event focused exclusively on services. It announced new subscription services for news, TV shows and gaming as well as a new credit card. The event got mixed reviews because Apple failed to announce pricing or launch dates for its TV and gaming offers. Analysts are similarly mixed on the promise of Apple's services business.

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Some investors see the nearly one billion iPhones world-wide as a huge distribution platform from which Apple will be able to easily sell across and generate billions of dollars in new revenue. Others question the new subscription offerings' ability to move the needle for a services business largely dependent on licensing revenue from Google and device-insurance revenue from AppleCare. Look for Mr. Cook to underscore the potential of services by highlighting Apple Music's overtaking Spotify in paid U.S. subscribers and disclosing for the first time how many subscribers the company has netted for its Apple News+ offering.

Little Old Money Maker: Ever since Apple announced plans last year to reach a net-cash-neutral position, investors have been asking: How much of that money is coming our way? The company is expected to provide an update Tuesday. It had a net-cash position of $130 billion at the end of last year and typically announces an update to its capital return program alongside second-quarter results. Last year, it increased dividend payments by 16% and announced a $100 billion share-repurchase program. By January, it had $63 billion outstanding from its $310 billion share-repurchase commitment, according to Above Avalon, a site dedicated to Apple analysis. The board is expected to approve another $75 billion to $100 billion in share repurchases, bringing the company's total capital-returns commitment to more than $400 billion since it was begun in 2012.

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

(END) Dow Jones Newswires

April 30, 2019 05:44 ET (09:44 GMT)

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