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Here’s what to look for during Apple’s Q1 2018 earnings call

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Apple (AAPL) is scheduled to announce its first quarter 2018 earnings on Feb. 1. And while the results for the period that ended Dec. 31 should prove positive, it’s the iPhone maker’s guidance estimates for the second quarter that has Wall Street on tenterhooks.

“We expect December results to easily beat guidance and consensus,” UBS analyst Steven Milunovich wrote in his earnings preview. Milunovich expects to see revenue from the quarter to hit $89.3 billion, or about $2.3 billion more than street estimates. RBC analyst Amit Daryanani is equally positive on Apple’s Q1 earnings, indicating that the firm expects Apple to have pulled in $88.8 billion in revenue.

Apple CEO Tim Cook at the annual Allen and Co. conference in 2013.

That’s great for Apple, but investors are spooked about the potential for Apple to report lower than expected guidance for the second quarter. The fear is rooted in reports that Apple is cutting back on production of its $999 iPhone X due to lower-than-expected consumer interest. Apple’s stock closed out the trading day down $0.99 to $166.97 on Tuesday.

According to The Wall Street Journal, Bernstein analyst Toni Sacconaghi believes Apple will report total iPhone sales of 51 million to  57 million units in the second quarter. The street estimate currently calls for 61 million units, according to The Journal. A separate article by The Journal indicates that Apple is cutting iPhone X production to 20 million from 40 million units.

That’s a massive reduction and if it turns out to be true, would prove to be a serious issue for the tech giant, especially when you consider the fact that Apple’s revenue is still based heavily on iPhone sales. More than 50% of the company’s revenue came from the handset in Q4 2017.

At the same time, though, Apple could benefit from increased per unit ASPs, or average selling prices. That’s because Apple currently sells 8 iPhone models: the iPhone SE, iPhone 6s, iPhone 6s Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X. Older models like the iPhone SE and iPhone 6s and 6s Plus could also boost Apple’s profit margins.

Then there’s the fact that more users are moving toward Apple’s big-screen Plus devices, which offer a higher ASP than the standard non-Plus iPhones. Apple may be seeing less interest in the iPhone X than expected due to its $999 price tag, but I have my doubts that the company will offer up such disappointing news during its earnings Thursday.

iPhone performance issues

Of course, that’s not all we’ll be watching out for. Apple is also likely to comment on issues surrounding its decision to hamstring performance of its older handsets in an effort to save those devices’ batteries.

The company has since stated that it will provide an update in the coming weeks that allows users to disable the performance limiter, but that hasn’t stopped consumer groups from filing lawsuits against the iPhone maker. The Department of Justice and the Securities and Exchange Commission also announced they are looking into the company’s disclosure of the issue. France, Italy and South Korea are also investigating the matter.

It’s also worth pointing out that Apple’s services revenue is continuing to grow, despite slowing demand for smartphones overall. Apple’s long-term plan clearly involves turning services such as Apple Music and iCloud into a major chunk of its business and the company is already on its way to accomplishing that goal.

Of course, we’ll just have to wait and see what CEO Tim Cook and company have up their sleeves during their call later this week. I’ll be covering it live, so stay tuned.

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