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What to expect from Apple's Q2 results today

John Cox | April 24, 2013
Speculation is rife that when Apple announces its fiscal second quarter results today at 5 pm EDT, its revenue, profits, gross margin, and earnings per share or some combination of them will be less than expected, or less than they should be, or both.

One analyst, Ben Reitzes with Barclays Bank's investment banking division, is already looking to the next quarter, and not seeing much of an improvement. "[W]e expect Apple to provide guidance below consensus for the June quarter with regard to revenue and gross margins," he writes in recent report. Reitzes reiterated Barclay's view that Apple needs to be, and will be, more open with investors about a range of issues, including its gross margin targets (since a small change in gross margin has an outsized impact on earnings per share), returning more cash to investors, and product plans.

"One of Apple's biggest challenges in 2013 will be that it has chosen not to participate in the market for 5-inch smartphones - and there is tangible evidence that this category is for real," Reitzes insists. "Apple has stood firm that its iPhone is ideal for one-handed use, which is true in our opinion. However, one handed use is arguably less important as phone calls become less and less crucial - the larger form factor has caught on for navigation, texting, videos, books and web access. Also, the larger screen seems to be more popular outside of the US and the phablet has significant momentum in China."

A number of Apple's suppliers, including Cirrus Logic and Foxconn, have reported lower than expected revenues or profits or both in recent weeks. In many cases, these results are being interpreted as representing a fall-off in orders from Apple. And that fall-off is then interpreted as evidence of slowing or even falling iPhone and iPad sales.

"Hon Hai Precision Industry, better known as Foxconn, reported an almost 20% drop in earnings in the past quarter," posted John Koetsier, at VentureBeat. Foxconn is Apple's main assembler for phones and tablets. "The problem, apparently, is lower than expected iPhone sales."

Koetsier linked to a Reuters story on Hon Hai's results, but the story itself, while it asserts that Hon Hai's results were "hurt by disappointing demand for the iPhone," only quotes a Wall Street analyst to that effect, not any Hon Hai executive.

In February, a report by NPD's DisplaySearch unit on LCD screen shipments found a sharp one-month decrease in the January OEM shipments of 9.7-inch display units and concluded that these shipments had "collapsed." The report sparked widespread speculation in the blogosphere that the retail market for full-size iPads had likewise collapsed, in part due to the unexpectedly strong sales of the smaller iPad mini. Apple so far has not released separate sales figures for the two tablets.

Halfway through Apple's 2013 fiscal year, speculation is intense about when Apple will announce and release the next iPhone and iPad models. There are almost as many opinions as there are analysts.


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