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On Tuesday, Apple Inc. will report results for the latest quarter, a period that saw the launch of its latest iPad model. Ahead of the report, investors have reined in their optimism, ending a tremendous four-month rally for the stock.
WHAT TO WATCH FOR: Although investors have had their fill of Apple stock, for now, analysts continue to be enthusiastic about the company. Their average target price of $708 is about 20 percent above Thursday's close of $587.44. They point to the company's enormous earnings and still-rapid growth rate, fueled by the iPhone and the iPad.
The note of skepticism that's been injected recently has to do with the iPhone, Apple's most profitable product by far. The reason the company can charge an average of $659 for a phone that costs about $200 to make is that consumers don't pay for the phone directly. The phone companies buy it from Apple at full price, then subsidize it to get the price down to $99 or $199 in stores. The carriers count on making it back through service fees over the life of a two-year contract.
The question is whether the phone companies can or want to keep that up much longer. Some analysts are suggesting that the cost of the iPhone will be what tips ailing No. 3 U.S. carrier Sprint Nextel Corp. into a bankruptcy filing.
On the post-earnings conference call, analysts are likely to ask CEO Tim Cook whether Apple would consider cutting the price of the iPhone, or if it has other ways of appeasing phone companies.
The fiscal second quarter, which runs January to March, usually displays a drop in sales from the preceding one, which is bolstered by the holidays. That means no record results are expected from Apple.
The new iPad went on sale in the U.S. and nine other countries on March 16, two weeks before the end of the quarter. It expanded to about two dozen other markets a week later.
But because of pent-up demand, analysts expect sales of about 12 million iPads during the entire quarter. That would be down from the last holiday quarter but more than double the sales in the same period last year.
IPhone sales are expected at just over 30 million units, down from the holidays and up about 50 percent from last year.
Apple doesn't use its earnings conference calls to reveal new products, but analysts will be listening for a hint about Apple's rumored interest in getting into TVs. It's one area of consumer electronics that it has mostly left alone, though it does sell Apple TV boxes that link a set to the iTunes store for movie viewing. Apple watchers are speculating that the Siri voice-command software on the iPhone 4S is a dry run for a voice-command TV set.
There has also been speculation about Apple creating a smaller, cheaper version of the iPad, to address competition from such devices as Amazon.com Inc.'s Kindle Fire.
WHY IT MATTERS: At a valuation of about $550 billion, Apple is the world's most valuable company, by far. Two weeks ago, it hit a value of $600 billion, a level only one other company -- Microsoft Corp. -- has ever hit. The iPhone, released in 2007, essentially created the mass smartphone market.
WHAT'S EXPECTED: Analysts expect earnings of $9.99 per share and revenue of $36.7 billion, according to FactSet.
Apple has said it expects earnings of $8.50 per share and revenue of $32.5 billion, but it routinely lowballs its forecasts, and investors don't pay much attention to them.
LAST YEAR'S QUARTER: In the same period a year ago, Apple earned $6.40 per share on $24.7 billion in revenue.