You'll recall that Apple on January 2 cut its financial projection for its December quarter, without offering any projection for iPhone units, as the company is no longer reporting those numbers. Estimates were promptly cut for both the December and the March quarters, but probably not by enough in the case of March.
The number arguably doesn't matter as much any more, since Apple last quarter said it will stop disclosing its iPhone sales. But it's still a number that many on the buy-side will be guesstimating right up till the release of March's financials, so it bears reflecting upon.
Since this was the first financial pre-announcement in the iPhone era for Apple, the circumstances at play are more volatile than those from past cycles.
To see Stephen Guilfoyle's take on how to play Apple's December quarter earnings on Real Money, our premium site for active investors, please click here.
One is the sharp fall-off in China: Market research firm Strategy Analytics on Thursday said the drop of 22% in Apple's sales into China was its worst showing since 2017. Apple's share of the China smartphone market dropped from 11.5% to 10.1%, and the drop would have been worse if not for the fact that Chinese smartphone maker Xiaomi's share fell even faster.
As I noted in this column back on Jan. 6, the company's iPhone problems probably are not limited to China, even though CEO Tim Cook seemed to imply it was mostly China's fault. Apple has simply priced itself out of some segments of the market globally by raising the top end of the iPhone line to over $1,000.
Leading indicators from Apple's chip suppliers are not encouraging.
As Eric Jhonsa wrote last week, the report by Apple's cellular modem supplier, Intel (INTC - Get Report) , of December-quarter results, included a forecast for the March quarter's revenue that missed consensus by a billion dollars. The company specifically cited ongoing pressure on modem sales.
A review of the data in the last several years show that the March numbers for Apple have farther to fall at this point in time, relative to estimates in the preceding December.
In the past few weeks, analysts have cut seven million units from their iPhone estimate for the December quarter, from 75 million to 68 million, but have only cut five million units for the March quarter, to 45 million. That suggests there's room to cut.
When Apple missed numbers for the December quarter of last year, during the first iPhone X cycle, the ultimate true total was 77 million units against an estimate at the end of December of 80 million. The delta for the March quarter, however, ended up being larger: estimates for March were for 62 million units at the end of December, while the real number ended up being 52 million when results were finally reported in April.
Similarly, for the December quarter of 2016, the iPhone 7 cycle, the company missed slightly for the December quarter, reporting 77 million versus an expected 78 million in the December preceding, while the delta for March was higher at the time: 55 million units estimated at the end of December, versus what turned out to be just 51 million units when the company reported in May.
Even in a year when the company ended up meeting consensus, the number had to come down quite a bit from December. Such was the case in March of 2016, when the number ultimately reported, 51 million, was slightly above estimates but much less than the 58 million analysts had been modeling in the December prior.
During the fabled "super cycle" of the iPhone 6, the first mega-screen, or phablet, iPhone, the numbers, of course, beat when finally reported in 2015. In that case, the delta between March's real report and December's estimate was wide: 54 million units for March was the ultimate total, versus an estimate back in the December preceding it of just 51 million units.
Analyst Katy Huberty with Morgan Stanley, who has an Overweight rating on Apple shares, and a $211 price target, on Friday morning wrote that the iPhone number for March is probably more like 43 million versus the 45 million consensus.
As for what to do with the stock, shares have recovered from the Jan. 2 pre-announcement plunge, with shares actually up half a percent since then. But they're still down one-third from their 52-week high of $233.47 reached back in September.
It's possible Tuesday's report will prompt a bounce upward in the shares, as the worst of the March number becomes apparent. Something similar happened this past week as companies that had been under pressure saw a relief rally.
Chip manufacturing equipment maker Lam Research (LRCX - Get Report) , for example, saw a 16% jump on Thursday following results and outlook on Wednesday that were not as bad as feared. Apple's results and outlook for its services offerings, such as the App Store, will likely matter more for many investors, especially with the iPhone number now hidden behind a cloak.
And then, keep in mind, there's always 2020's iPhone lineup to look forward to!