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Apple's 'iPad Christmas' Holds the Key (Update 2)

Stocks in this article: AAPL GOOG CHL

Updated from 10:47 a.m. EST to include more outlook on the iPad in the eighth paragraph.

NEW YORK (TheStreet) -- Apple (AAPL)AAPL is set to report firscal first-quarter earnings after the bell Monday, and all eyes will be on the iPhone with particular attention paid to how many tens of millions of units Apple sold in the quarter. However, the tech heavyweight's other flagship product, the iPad, may hold the key to the quarter.

On Apple's fiscal fourth-quarter earnings call, CEO Timothy D. Cook said he expected it to be an "iPad Christmas," following the company's announcements of the iPad Air and the iPad mini with Retina Display in that quarter. "I think it's going to be an iPad Christmas and -- but we will see," Cook said during the conference call. "We will report the numbers back to you in January how we did, but we are pretty confident."

For Cook to make a public statement about the opportunity ahead of Apple regarding the iPad is pretty bold. It's an indication that not only does Apple feel it's made the best tablet on the market, despite the plethora of tablets running on Google's (GOOG) Android operating system in the market place, but an indication the company had its supply chain in order as well.

Goldman Sachs analyst Bill Shope significantly raised his iPad unit sales and iPad revenue last week, noting that the larger form factor iPad (iPad Air) helped. "The far more substantial increase in our December quarter revenue estimate is due to our view that demand was far less tilted towards the iPad mini relative to the larger form factor iPad than we saw in 2013 and relative to our initial expectations, which drove our ASPs higher," Shope said in a note last week, raising Apple's price target to $635 from $620.

Morgan Stanley analyst Katy Huberty also believes the iPad could help drive upside for the quarter. "iPad shipments as high as 26M could drive potential revenue upside vs.
our model and consensus of 23M," Huberty wrote in her note.

Though Wall Street does not break down estimates by product sales, there are several on Wall Street who are expecting north of 25 million units sold. Fortune's Philip Elmer-Dewitt was kind enough to compile consensus, with a bunch of analysts expecting more than 25 million units sold, with the high being 28 million units from two analysts.

Apple sold 14.1 million iPads last quarter, compared to 14.6 million in the fiscal third-quarter, and slightly more than 14 million iPads in the year ago quarter. With a massive redesign of the larger iPad, and the iPad mini getting Retina Display, it's likely to be a strong holiday season.

Though it's expected that Apple will have sold more than 20 million iPads during the quarter, its market share continues to drop due to Apple's high pricing. Credit Suisse analyst Kulbiner Garcha says he expects Apple's market share to fall to 22% in 2014, down from 41% in 2012. "While we see the tablet market growing to 447mn units by 2017 (nearly twice CY13 estimates) we see most of the incremental growth in the sub $200 ASP segment where Apple is not currently exposed," Garcha wrote in his note.

Cantor Fitzgerald analyst Brian White explains that the iPad Air really helped drive results this quarter, given the enormous amount of positive praise from tech reviewers, media, analysts and consumers alike. "For the iPad, we believe Apple could exceed our 24.5 million unit forecast for 1Q:FY14 driven by strong demand for the higher-margin, higher-ASP iPad Air," White wrote in his note. "We believe the first-generation iPad mini outsold the recently introduced Retina Display version in 1Q:FY14."

For the full quarter, analysts surveyed by Thomson Reuters expected Apple to earn $14.07 per share on $57.45 billion in revenue.

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