Apple report faces nagging investors

SAN FRANCISCO — Annoying Orange, YouTube's fruit-heckling cartoon sensation, always dishes a grim punchline — one that could serve as a warning for Tuesday's earnings report from Apple: "Hey, apple — knife!!!"

If Wall Street isn't pleased with the company's earnings results, Apple's stock, too, may swiftly get cut down like a ridiculed fruit character.

Already, Apple shares have been cored, gutting more than 40% of its value and exploring new 52-week lows on competitive concerns. Much is at stake in Apple's second-quarter report, an update that could end a decade-long spree of year-over-year profit growth.

Investors will be closely tuned to all-important iPhone sales. That's in no small part because iPhones make up 65% to 70% of company profits. Those profits are increasingly coming under pressure as Apple faces rivals churning out new phones, most recently HTC's One and Samsung's coming Galaxy 4S.

"The worry is you have phones coming out from others and not from Apple," says Bernstein Research analyst Toni Sacconaghi.

Another problem concerns expectations that Apple is selling an increasing mix of its lower-price older iPhones, pressuring profits, over iPhone 5 models. Also on watch alert: Apple is selling an increasing number of iPad Minis, which command lower margins than other iPads.

"Their two best-selling product lines could sting them a little if margins are down," says Gartner analyst Van Baker.

Apple is seen earning $9.5 billion on $42.3 billion in revenue for its second-quarter results, according to the survey of estimates from Thomson Reuters. In advance of earnings, Apple shares rose 2.1% to close Monday trading at $398.67.

If Apple misses its iPhone numbers by much, the stock could get further whacked on new pessimism for the company's financial growth prospects and pricing pressures. If gross margins decline for the fourth quarter in a row, it will be further evidence that Android competition is eating away at Apple's profitability.

Institutional shareholders have been cycling out of the stock in favor of more growth-oriented momentum stocks as Apple's slowdown parks it more squarely among value stocks. Value stock investors will also be clamoring for updates to Apple's plans to disperse more cash to investors in dividends. Apple notched a total $137 billion in cash as of its previous quarter.

As always, any grim forward-looking guidance could pare Apple's shares fast in after-hours trading.

"I think the guidance for the next quarter will be a concern," says Sacconaghi. "If we see pressures on margins, that will embolden the bears."

In other words, duck.