We'll know after the close just how good Apple's holiday quarter really was in terms of iPhone and iPad sales, but on some fundamental level, it's unlikely to matter to Wall Street. Even without seeing the final tally -- and let the record show I'm expecting better than the 56.2 million phones in Philip Elmer De-Witt's quarterly consensus roundup at Fortune -- it's possible to look ahead and see a lot of things that are going to feel awfully familiar tomorrow.
1) Fretting about the iPhone's decreasing market share. The latest data from Kantar shows the iPhone losing share in pretty much every market its tracking: the U.S., Europe, Australia and Latin America. While iPhone sales will be up year over year -- and by 15% or so over 2013's 47.8 million -- the smartphone segment grew by much more. Leave aside the debate for a second about whether Apple needs to worry about this. The fact is: One school of thought is that the iPhone is increasingly being boxed into a narrower luxury segment that will eventually, itself, go away. The shrinking market share camp will declare the growth insufficient.
2) Handwringing about average selling prices and gross margins. This part of the story goes with the above. If iPhone prices truly started to fall along with margins, market share would rise (good), but those other metrics would fall (bad). Either way, you upset some portion of the analyst community. This is the financial version of the dilemma I called "Apple Can't Win" back in September.
3) Even with a strong top line, the bottom line still is struggling. Here's the harsh reality of how successful Apple got in 2012: It's going to sell more Macs, more iPhones and more iPads. Yet the company isn't going to net much more money. Last quarter, Apple's guidance was for about $11.8-12.9 billion in earnings. Yet a year ago, the company delivered a record $13.1 billion profit in the same period.
There is "good news" on the earnings per share front. Thanks to aggressive stock repurchasing, Apple will end the quarter will fewer than 900 million shares outstanding (we won't know the precise figure until later today). That's at least 47 million fewer than a year ago and means that the $13.81 per share Apple earned in the end of 2012 will be eclipsed this year. The high end of the guidance range was $14.30 using 900 million shares while the Fortune consensus now runs as high as $14.81 overall. Even taking the absolute best figure, earnings per share seems headed up less than 10% and actual earnings seems to be flat or down a bit. The question of how Apple will grow its profits from here will continue to go unanswered.
4) The seasonal swoon comes immediately and it's likely China will get over scrutinized. Apple always sells a lot less in the quarter that started January 1. But this time, it coincides nicely with the company's new deal to sell iPhones on China Mobile, the world's largest mobile carrier. Don't doubt for a second that suddenly you're going to hear that any "weakness" in the coming quarter calls into question how popular the "too expensive" iPhone is among Chinese customers who are "increasingly turning to domestic brands." (I provided quote marks so you can understand what is likely to be the narrative in many quarters.)
If you want to be smart, look ahead yourself and know that last year, iPhone sales in the coming quarter were 78% of the total posted in the one that just ended. Anything equal or better is actually great news. Anything worse would add fuel to the fire that Apple might need to rethink its "one product a year" strategy. But reaching conclusions about China this soon will be a huge mistake and yet it will get made.
5) Apple doesn't announce products on earnings calls. Here's what we will learn nothing about today (a) Whether the next iPhone will have a bigger screen (b) Whether Apple plans on introducing a phablet this year -- or more likely next year, if ever (c) The ship date for an upgraded AppleTV and what it will do (d) Plans for an Apple payments service (e) If a 13-inch iPad is debuting this year. And, yet, as always, there'll be some narrative about the disappointment we learned nothing about those things. In fairness, part of the concern will be that revenues are growing slowly despite blockbuster sales. The recent weak results at Samsung and Nokia, combined with a loss at LG's mobile unit even on a big sales uptick, will fuel a narrative about a maturing smartphone market. And that story has a lot of truth to it.
What's less clear is whether that maturing market is a problem for Apple. A vulnerable Samsung presents opportunities for a very intriguing market-share strategy, but that deserves a more thorough discussion in an upcoming post. In the meantime, I'll dissect earnings later today.
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