Here's why Apple's Q2 earnings almost won't matter

Daniel Howley
Technology Editor

Apple (AAPL) is reporting its Q2 2017 earnings on Tuesday. While the results will certainly receive attention, they’re almost a non-issue at this point. That’s because investors and consumers already have their eyes fixed on the tech giant’s big 10th-anniversary iPhone launch later this year.

The company’s Q2 report is generally among its weakest. That’s because its holiday-powered Q1 sales are in its rearview, and with interest in Apple’s next-generation handset rising, sales of current-generation iPhones fall off significantly.

Apple Store Carrousel du Louvre in Paris, France.(image: Wikimedia Commons)

The iPhone 8, or iPhone 10 or iPhone X, whatever Apple decides to call it, is expected to launch what analysts call a supercycle, a massive increase in sales due to consumers trading in their older handsets for a new device that many predict will be a major improvement over the iPhone 7 and 7 Plus.

Speaking of which, Apple moved an incredible 78.3 million iPhones during the Q1 holiday season with an average selling price (ASP) of $694.57, beating Wall Street’s expectations of $688. That means more consumers were purchasing high-priced iPhones like the 7 Plus.

Slower iPhone sales, but above average selling price

UBS analyst Steve Milunovich says ASP should remain high in Q2, with 33% of iPhone buyers opting for the 7 Plus versus the historic average of 20% to 30%.

In Q2 2017, the company is expected to sell approximately 52 million iPhones, a year-over-year increase of about 1 million units. If Apple hits that mark, the company won’t have much to worry about going into Q3 and Q4 2017. If that ASP holds, Apple should come in with a solid quarter.

Apple’s iPhone 7 Plus.

As usual, though, the company will have to keep an eye on its sales performance in China, which has proved to be a stubborn market to crack due to stiff competition from local handset makers like Xiaomi.

The release of Samsung’s Galaxy S8 and S8 Plus could also hurt Apple’s iPhone sales. Samsung reports that pre-sales of the Galaxy S8 and S8 Plus were up 30% versus the Galaxy S7, meaning the S8 is the best launch device in the company’s history.

The iPad and Apple’s services

Apple’s iPad sales, on the other hand, will likely continue to slide. The company saw a 19% decrease in unit sales in Q1, and there’s little sign that decline will turn around any time soon. Apple did release a new, less expensive iPad during Q2, but it’s unlikely to make much of a dent in the company’s earnings statement.

Apple’s fortunes are currently driven by iPhone sales, but the company’s services sector continues to grow. That includes everything from the App Store to Beats and Apple Music.

In fact, current predictions indicate that the sector could double by 2020 despite fluctuations in smartphone and tablet sales. So any decreases in this portion of Apple’s portfolio in Q2 could spell trouble for the company’s long-term prospects.

We’ll be covering Apple’s earnings live when they’re announced Tuesday after the closing bell. Stay tuned.

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Email Daniel at dhowley@yahoo-inc.com; follow him on Twitter at @DanielHowley.