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What Goldman Sachs Thinks About Apple Earnings

Updated from 10:57 a.m. to include fiscal 2014 to 2016 estimates.

NEW YORK (TheStreet) -- Apple (AAPL - Get Report) is set to report fiscal second-quarter earnings after the close. So naturally, investors want to know what Wall Street's most important bank, Goldman Sachs (GS) thinks, right?

Right after Morgan Stanley and analyst Katy Huberty, Goldman Sachs analyst Bill Shope is the most influential Apple analyst on Wall Street. He goes second in the queue when asking questions on Apple earnings call, and given the status of Goldman Sachs on Wall Street (and in the world), people naturally want to hear what he has to say.

Shope, who rates Apple a "buy" with a $610 price target, is expecting Apple to generate $43.88 billion in revenue for the quarter, earning $10.42 a share, up from $43.85 billion and $10.30 a share in a prior view, due to Apple's large buyback in February. For the June quarter, Shope expects $37.5 billion in revenue, and $8.92 a share in earnings. Shope is also expecting to hear an update on Apple's buyback and dividend policies, with an increase of $30 billion to $35 billion for share buybacks, and an additional 10% to 15% earmarked for dividends.

Here are his unit estimates for the March quarter:

iPhone: 39 million
iPad: 18.8 million
Mac: 3.9 million
iPod: 3 million

"The key risk for the earnings release is a below-consensus June quarter guide, which would only partially be countered by the larger capital allocation program," Shope wrote in a note to clients. "With that said, we believe this risk is less pronounced than the deterioration we saw at this stage of the 2013 product cycle for three reasons: 1) we don't expect this weakness to be coupled with gross margin erosion; 2) the China Mobile ramp is expected to gain momentum through 2014; and 3) revised carrier policies in 2013 artificially shifted some demand forward."

Shope notes that a weak guide for June's quarter would start to rekindle the fear that Apple's growth days are over, noting that the iPhone 5 was unable to attract a "sufficient number of new users, and this led to a hyper-seasonal decline in demand after the December quarter." If this happens again, it then solidifies the bear case that Apple is merely churning along and not growing its user base. He's expecting Apple to have shipped 32.78 million iPhones during the quarter.

For fiscal 2014, Shope is expecting Apple to earn $44.51 a share, generating $181.24 billion in revenue. For fiscal 2015 and 2016, he's looking for the tech giant to earn $52.59 and $61.18 a share, on revenue of $204.68 billion and $230.13 billion, respectively.

With Apple's Worldwide Developer Conference in June and the next version of the iPhone a few months after that, that's the immediate area of focus. "There is greater focus on the iPhone 6 ramp as the larger screen sizes for the next generation devices are expected to produce the most substantial form factor revisions in the product's history," Shope wrote. "This next generation product cycle is important as it could produce far greater installed base refresh activity than we have seen over the past two years; nevertheless, we don't believe this solves the greater problem of reinvigorating Apple's pace of new user acquisition."

Then of course, there are the new products Apple CEO Timothy D. Cook has been promising. On Apple's most recent quarterly earnings call, he touched on mobile payments. There's also the oft-rumored iWatch, and perhaps the worst kept secret of them all, what Apple plans to do with television.

--Written by Chris Ciaccia in New York

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