The key questions about Apple that its second-quarter earnings might answer

Unclear whether it will be this rosy.
Unclear whether it will be this rosy.
Image: Apple
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Last quarter, Apple sold more iPhones than it had ever sold before, and brought in more revenue than it had in any quarter in its 41-year history. What does it have in store this time around?

Probably not as much. Apple will report its second-quarter earnings tomorrow, May 2 (its fiscal year ends in September), after the US markets close. Apple’s stock surged to new heights in the months after its last record-breaking earnings report in January. But its second quarter is traditionally the company’s slowest of the year. Here’s what to look out for after the blockbuster holiday quarter:

How Apple handled the slow quarter after a record-breaker

Apple recently managed to halt a multi-quarter slide, recovering from its first drop in annual sales since 2001. We’ll find out whether Apple’s blockbuster quarter and consumer enthusiasm for the iPhone 7 continued into the second quarter, or if things have cooled off once again.

A lot of Wall Street’s continued optimism for Apple after its last earnings call is more about what the company potentially has in store for the futureself-driving cars, augmented reality glasses, and a completely new smartphone have all been rumored—rather than what Apple is likely to report May 2. Look for comments on Apple’s earnings call about new technologies that CEO Tim Cook and others have mentioned before, such as machine learning and augmented reality, for hints at where Apple is likely heading.

Whether services can keep Apple plugging along

But in the near term, Apple is trying to keep loyal customers spending when they’ve already bought a new iPhone, iPad or computer. The way it does that is its services business—sales of apps, movies, music, and AppleCare insurance. These have become the company’s second-largest business segment in recent quarters, although it was pipped to the title by Apple’s resurgent computer business.

Look for whether Apple has managed to lock customers in to paying for content on their Apple devices, whether that’s more Apple Music subscribers (of which there are now more than 20 million, at $120 per year in the US) paying monthly fees for access to exclusive music (and in the future, TV shows), more people downloading games and apps for their devices, or more people getting insurance for their rather breakable purchases.

How Apple’s new products are faring

Apple’s Mac business has been growing for the last few quarters, despite few new models and the global contraction of the computer industry. The company’s revamped MacBook Pro line was unveiled at the end of October, and was generally available in the middle of November, so this will be the first full quarter in which the computers will have been on sale. Streams of loyal users were underwhelmed with the new laptops’ under-powered processorslack of ports, and fiddly “Touch Bar” that replaced the function keys; some even suggested switching to Windows computers. This quarter’s numbers will help investors judge how widely those gripes are shared.

One of Apple’s newest products, the wireless earphones called AirPods, also went on sale at the end of December, so look to Apple’s “Other products” bucket—where it lumps together its smaller businesses, such as the Apple Watch, accessories, headphones, and the iPod—to see if the Tic-Tac shaped pods had any impact on the company’s revenue.

Apple also released a slew of updates in late March, including a new version of its standard iPad, a red iPhone 7, and a new iPhone SE, but it’s very likely that these were all released too late to affect the company’s second-quarter figures.

Whether Apple can find success in Asia

Just as Apple has striven (with limited success) to create other gadgets as popular as the iPhone so it doesn’t depend too much on one product, it’s likely looking to Asia, where hundreds of millions of people are entering China and India’s burgeoning middle classes, so it doesn’t depend too much on one market (the Americas, its largest by far). Last quarter, CFO Luca Maestri touted on the company’s earnings call that Apple had posted double-digit growth in mainland China and India. That was against the previous quarter, though, and the sales there as elsewhere in the world are highly cyclical; year-on-year, sales in China were slightly down. So this call will reveal whether China has once again pipped Europe to be Apple’s second-largest market, and whether its “Rest of Asia” market (which includes India) has overtaken Japan.