AAPL Stock: 3 Important Items for Apple Q2 Earnings Call

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A Storm Brewing for AAPL Stock

Apple Inc. (NASDAQ:AAPL) will hold the Apple Q2 earnings call after the closing bell on Tuesday, but most of you knew that. Every investor marks the Apple earnings report date on their calendar, even those who don’t own AAPL stock.

This is in part because Apple has become a bellwether for the consumer electronics market. As goes Apple, so goes the rest of the market.

So, it’s a good sign that analysts expect $2.69 earnings per share (EPS) on $61.3 billion in revenue. Those are positive numbers for Apple. If the company delivers better-than-expected results—like, say, $2.80 EPS—we could see the Apple stock price explode.

But there are potential landmines that Apple could step on. Privacy, smartphone addiction, the fundamental limits of growth—these are tough, existential problems that Apple is dealing with.

I expect that analysts will grill CEO Tim Cook over these issues in the Apple Q2 earnings call. One wrong answer, one sentence that spooks the markets, and the AAPL stock price could come crashing down.

Below are some of the items you should watch out for.

What Apple Does With Its Cash

The AAPL stock price rose 1.8% in anticipation of huge stock buybacks.

Expectations for the buyback/dividend program range from $100.0 billion (Citigroup Inc) to $150.0 billion (Morgan Stanley), largely because the Donald Trump administration made it possible for Apple to repatriate cash for next to nothing. (Source: “Breakingviews – Apple may double capital returned to investors,” Reuters, April 30, 2018.)

But are stock buybacks really a good thing?

Sure, Apple is giving profits back to investors, the same folks who showed faith in the stock, which is what you’d expect a profitable company to do. In the short term.

The long term is quite different.

Spending money on share buybacks/dividends means less money goes into expanding the business. And businesses don’t grow without capital, so there’s a bitter irony to the value of share buybacks.

Short term, it’s a reward. Long term, it’s a poison pill.

Underwhelming iPhone X Sales

Based on recent earnings from microchip suppliers, the “iPhone X” may not have sold as well as analysts had hoped. If that’s true, investors won’t be happy.

I’m expecting Cook to get questions about this during the Apple Q2 earnings call.

Was $1,000 too expensive for the iPhone X? Can Apple continue to rely on device sales? Is the smartphone market fully mature?

The stock market has ignored these questions in the past.

Apple blinds everyone with its 11-figure profits, but I don’t see how it can keep that trend up by raising prices to $1,000, $1,500, or $2,000.

Consumers simply can’t afford to spend that much money every other year. Even diehard AAPL bulls realize that now.

The time is coming for Apple to address the fundamental limitations of the smartphone market.

Apple’s Microchip Gambit

Is Apple making its own microchips? Will it cut Qualcomm, Inc. (NASDAQ:QCOM) out of the process altogether? The Apple blogosphere is buzzing with speculation. (Source: “Apple might make its own ultra-fast iPhone 5G modems,” Cult of Mac, April 30, 2018.)

Here’s what happened: Apple added, then removed, a job posting for a “mmWave IC design engineer.”

Although that job title is meaningless to regular folks, it set the semiconductor business on fire. It suggested that Apple is building its own 5G wireless chip, which would, over time, reduce its dependence on Qualcomm’s patented technology.

You can bet that Cook will have to field questions on this subject.

Analyst Take

Overall, I expect Apple to survive the tough questions. Tim Cook is a seasoned veteran at earnings calls, plus he’s fresh off a media tour. He’s wearing his game face.

Even if Apple disappoints on one particular metric, and that leads to a downtick in the AAPL stock price, I can’t imagine investors abandoning the company. The prospect of $100.0 billion to $150.0 billion in share buybacks is simply too appealing.

So, whether I like it or not, Apple can pay to postpone Judgement Day. At least for now.