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Apple Reports Earnings on Thursday: 4 Things to Watch

The timing of the all-important 5G iPhone launch will be a critical focal point of Apple's upcoming report and shareholder call.
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Apple reports its latest earnings this week, and with it, the overall impact of COVID-19 on the iPhone giant comes into clearer focus. 

Despite a challenging few months, both for its supply chain and for consumer demand, positive sentiment over Apple's long-term prospects have helped lift its shares 25% so far this year. Among other developments, Apple  (AAPL) - Get Apple Inc. Report plans to produce its own lineup of silicon chips and will also release new 5G iPhones later this year.  

"COVID-19 has made this one of the toughest quarters to form high-conviction expectations. But I believe financial results will be supported once again by services, as consumers continue to spend lavishly from home," said Daniel Martins, a financial researcher who writes about Apple. "The iPhone should be a story of pros and cons, with the April launch of the SE and earlier recovery in China helping to offset what should be a very weak North America market.”

Analysts polled by FactSet are expecting earnings of $2.04 and revenue of $52.13 billion for the quarter ending June 30. Here are a few key themes to watch when Apple reports its latest results on Thursday, July 30. 

1. 5G iPhone Timing

For Apple investors, the biggest X factor that could affect shares is the timing of its next iPhone release. New iPhones are typically announced in September at a big in-person event, but for obvious reasons, the announcement will look a bit different this year. The phone could arrive later than normal, too: The Japanese Apple blog Mac Otakara reported last week that the 5G iPhone won'y be ready until late October. 

According to Goldman Sachs analyst Rod Hall -- one of the few Apple bears on Wall Street -- a one-month iPhone delay would reduce holiday revenue sales by about 7%, and earnings by about 6%. Hall believes that Apple is unlikely to offer September quarter guidance, owing to COVID-19 and the uncertainty of its release. The company typically doesn't discuss future product launches, but may drop hints on the state of iPhone production; and if it does give September guidance, investors may be able to extrapolate information from that. 

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2. Antitrust Issues

Apple's earnings release comes on the heels of another high-profile event: Apple CEO Tim Cook's testimony at a Congressional antitrust hearing, scheduled for Wednesday, July 29. Although he'll be sharing the stage with three other CEOs, Cook must answer to Capitol Hill critics -- whose questioning will give a glimpse into lawmakers' posture towards Apple. 

In the U.S. and Europe, Apple has faced intensifying scrutiny over its App Store fees, which top out at 30%, and developer terms of use that critics consider overly onerous or even monopolistic. A similar battle is being waged in the courts, with antitrust lawsuits related to the App Store gradually advancing through courts. Apple may offer additional commentary surrounding the scrutiny and its view on the regulatory threats.

3. iPhone SE Results

Among the bright spots in Apple's year so fara is the strong performance of the low-budget iPhone SE. On its last earnings call, Apple told investors that the new phone had a warm reception, and early demand signals appear strong

Apple is targeting Android users in particular with the new phone, and if successful, would lure more people into Apple's lucrative installed base of devices. According to RBC analyst Robert Muller, details and commentary "surrounding adoption of iPhone SE and typical customer profile," as well as the impact of the iPhone SE on Apple's hardware margins, will be one of the key focus points on Apple's call with investors on Thursday. 

4. Services Momentum 

With more people stuck at home, analysts expect Apple's services business to show healthy results. For the June quarter, analysts forecast revenue of $13.13 billion for the services segment, which analysts view as a linchpin of Apple's valuation potential. 

Wall Street is beginning to fully appreciate what services are worth to Apple, and how they complement iPhone sales, according to Wedbush analyst Dan Ives: "The services business we assign a $600 billion to $650 billion valuation range given the increasing importance of this key revenue stream that is getting a new appreciation by investors during this COVID-19 pandemic," he wrote. Apple management will likely comment on what trends they saw across the growing services lineup, which includes the App Store, Apple TV+, Apple News+, Apple Arcade, Apple Card and other offerings.