Will Apple Earnings Blow Hot?

Apple (NASDAQ:AAPL) has had an eventful end to its fourth fiscal quarter with the high of the launch of the iPhone 5 being followed by supply constraint issues and public criticism of the smartphone as well as iOS 6. Most analysts are of the opinion that the company’s quarterly earnings report, scheduled to be announced on October 25, will be critical going into the holiday season and the start of a new fiscal year.

Last quarter, most headlines had centered on the company missing expectations even though Apple registered double digit year-over-year growth with its revenue of $35 billion and net income of $9.32 per share. The company had then blamed anticipation for the next-generation iPhone for the slowed sales, but now, with the iPhone 5 having finally been launched, the smartphone is going to be a key factor driving earnings. The iPhone, after all, usually represents about 40 percent of Apple sales.

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Unfortunately for Apple, the iPhone 5 is seeing component severe supply constraints and even well-known Apple bull Gene Munster is lowering expectations at least for this quarter. The Piper Jaffray said that he had cut his estimates of unit sales of 25 to 27 million iPhones to the lower end of his range at 25 million. According to Munster, Apple may have sold 8 million iPhone 5s along with 17 million units of older versions of the device. But it worth noting that initial expectations had been blockbuster high and paring the often unrealistic estimates does not necessarily translate to a bad performance.

In addition, Apple is expected to earn a 70 percent gross margin on the iPhone 5, since a teardown found that the cost to build the device was between $207 and $238 and unsubsidized retail prices fell between $649 and $848. Apple also makes about 51 percent in gross margin on its third-generation iPad.

Along with the launch of the iPhone 5, the quarter also included the launch of Mountain Lion as well as fresh sales of the new MacBook line, which will be an important factor to look at. The earnings release will also offer Apple the chance to comment on the Tim Cook’s first full year as the company’s chief executive.

In its last report, Apple had set a fourth-quarter guidance of $34 billion in revenue and $7.65 in earnings per share, representing an 8.5 percent year-over-year increase in earnings and a 20.2 percent increase in sales. The iPhone maker, though, is known for setting expectations low and analysts are instead pitching hopes on $36 billion in revenue and $8.92 per share in earnings.

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