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What to look for in Apple's earnings announcement

It’s that time again—time to once more pore over page after page of financial details, to stare at endless columns of numbers, hoping that some obscure truth, unseen by most, will pop out at us. Yes, it’s time for Apple financials.

On Tuesday, Apple will release the numbers for its third quarter. Here’s a bit of what you can expect from the company’s announcements, as well as the subsequent skeet shoot Q&A from analysts. As ever, Macworld will be on hand with live coverage of the conference call, starting at 2 p.m. PT/5 p.m. ET.

The numbers

As usual, Apple provided guidance three months ago on how much money it would rake in during the third quarter. Back in April, outgoing CFO Peter Oppenheimer said the company expected revenues between $36 billion and $38 billion, with a gross margin between 37 percent and 38 percent. How, you might wonder, does that compare to the previous quarter and the year ago quarter?

Glad you asked. In the second quarter of 2014, Apple posted revenue of $45.6 billion with a margin of 39.3 percent. That would make both revenue and margin for the third quarter down sequentially—little surprise, given that a quick review of Apple’s news for the last three months finds few significant announcements and no major new shipping products.

The year-over-year numbers are expected to be a little better: In the third quarter of 2013, Apple had revenue of $35.3 billion, with a gross margin of 36.9 percent.

Analysts, meanwhile, are predicting that the company's revenues will be towards the higher end of Oppenheimer’s guidance; their predictions average around $37.93 billion. They’re also predicting an average earnings per share of around $1.23.

Don’t panic if that sounds low, especially compared to last quarter’s earnings per share of $11.62. Remember, Apple’s stock split seven-for-one in June, meaning that share-related numbers have to be rejiggered slightly. With adjustments for the split, last quarter’s earnings per share translate to $1.66, with the year-ago-quarter’s earnings at $1.07.

So overall, expect this quarter to be an improvement on last year’s third quarter, but down from this year's second—which is just about in line with the company’s performance for the last couple years.

The iPhone

Apple’s smartphone remains the company’s cash cow. So far this year, the company’s sold 94.7 million iPhones, 43.7 million of them in the most recent quarter. Traditionally, the numbers start to drop off in the summer, as we get closer to an autumn launch of new models and people start to think harder about whether they really need to replace their phone right now. Last year, during the company’s third quarter, it sold 31.2 million iPhones.

Meanwhile, the iPhone rumor mill has kicked in to overdrive, with purported leaks of the phone’s housing, its front glass (reputedly made from sapphire), and more. Expect the big questions this year to revolve around the possibility that Apple will release multiple bigger-screen iPhones of bigger sizes. Analysts will try to lure Tim Cook into saying something about, say, the “opportunity” in larger screen sizes. Expect Cook to remain steadfast in his resolution to say nothing of import.

The iPad

If there’s one area that’s going to face particular scrutiny this quarter, it’s likely to be Apple’s iPad sales. The company sold 16.35 million iPads in the second quarter of 2014, which itself was a dip from the 19.48 million sold in the second quarter of 2013. There was a lot of speculation around that decline, though Cook attributed it to inventory management and supply-demand balance.

iPad sales have varied pretty widely in the third quarter of the last few years, so it’s hard to say precisely how well the tablet will do this time around. But if Tim Cook’s explanations for the iPad hold water, then we should expect iPad sales to have stabilized somewhat in the year-over-year numbers. So expect something close to the 14.6 million that the company sold in the year-ago quarter.

The Mac

The Mac remains one of the steadiest performers in Apple’s lineup, even if it never quite reaches the stratospheric heights of the iPhone and iPad. Like the rest of Apple’s products, it tends to peak in the holiday quarter, with the second and third quarters often remaining largely flat. Apple does often provide incentives for back-to-school purchases, but since the third quarter technically ended at the end of June, and the company’s education promotions didn’t kick off until July 1st, the effects from that will be felt more in the fourth quarter.

Mac Pro Photo: Michael Homnick

Market share has ticked steadily upwards for the Mac, and there doesn’t seem to be any reason for that not to continue in the third-quarter. In the year ago quarter, Apple moved 3.75 million Macs—expect something in the 4 million range, plus or minus a couple hundred thousand units.

The rest

Despite the lack of major shipping new products in the quarter, there are a few topics likely to get some play in the conference call. For one thing, this marks the first quarterly earnings since Apple acquired Beats Electronics and Beats Music in May. Not only will that have a financial impact on Apple, but analysts are sure to try and pump Tim Cook for information on how he sees the the addition affecting Apple.

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Likewise, news last week that the company had struck a deal with IBM to increase the footprint of iOS devices in the enterprise might also provide a jumping-off point for analyst questions. Cook is fond of quoting statistics about the breadth of iOS device deployment in enterprise—this gives him an opportunity to talk about the depth too.

Personally, I’d like to see somebody ask Apple about the pricing changes it has made throughout its line-up. Between revamped iPod touches, a new entry-level iMac, lower prices on MacBook Airs, and wide-ranging discounts, Apple seems to be playing much more aggressively on price than it ever has in the past. Is this a new strategy from the company, or merely a function of the company getting ever more efficient at making the products it sells?

And finally, with the third-quarter conference call, Apple’s new chief financial officer, Luca Maestri, takes the mantle from the retiring Peter Oppenheimer. It’s the end of an era, to be sure, but don’t expect it to be anything but business as usual.

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