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Apple Earnings Preview: iPhone Sales Get China Boost, Buybacks In Focus

A big boost from China could lift iPhone sales closer to $42 billion this quarter, while work-from-home dynamics should continue to boost Mac, iPad and services demand.

Apple  (AAPL) - Get Apple Inc. Report shares edged higher Wednesday ahead of a key second quarter earnings report that could see a boost in the tech giant's buyback program amid a China-driven surge in iPhone sales.

Check out Eric Jhonsa’s live blog of Apple’s earnings on Wednesday after the close.

Apple is expected to post a bottom line of 99 cents per share for the three months ending in March, the group's fiscal second quarter, on a 32.6% increase in revenues to $77.35 billion. iPhone sales are likely to comprise the bulk of that gain, with the top line from Apple's best-selling product forecast to come in at $41.7 billion, a 44% increase from last year's pandemic-hit tally that's also supported by last year's launch of the iPhone 12. 

China sales will likely provide a huge boost to Apple's overall iPhone tally, according to Credit Suisse analysts, who cite government data on "overseas' branded handsets into the world's biggest market that indicates an "outsized contribution" from last year.

Work-from-home changes, which triggered a surge in Mac and iPad revenues last year, are expected to lift sales in Apple's 'other products' category (which includes the AppleWatch) by around 40% to $22.1 billion. Analysts are also looking for services revenues in the region of $16.1 billion. 

"With the pandemic increasing remote learning and work, this is leading to very strong Mac and iPad sales, which in turn should further bolster the Apple installed base ecosystem, which exceed 1.65 billion devices globally," said Canaccord Genuity analyst T. Michael Walkley in a recent client note. "With more and more consumers owning multiple Apple devices, this should lead to strong ongoing hardware sales as consumers are extremely likely to upgrade to another Apple product when time to replace current devices."

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"Also, this growing base should consume increasing Apple services, helping drive faster growth for this high-margin business than the overall hardware business," he added.

Apple shares were marked 0.2% higher in early trading Wednesday and changing hands at $134.65 each, a move that leaves the stock with a modest 1.25% gain so far this year but a market value of more than $2.26 trillion.

Apple is expected to post its second quarter earnings at 4:30 PM Eastern time.

Apple, which typically unveils capital allocation plans during its second quarter update, is also expected to boost its share buyback plans by between $80 billion and $100 billion, a figure large enough to support $20 billion in quarterly repurchases for at least the next year. 

Apple has committed to a 'cash neutral' position in the coming years, with a December quarter end pile of around $195.5 billion.

June quarter earnings forecasts, which also provide near-term direction for the stock in after-hours trading, point to a bottom line of 82 cents per share on sales of $69.5 billion.

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