Apple may see earnings drop, but outlook is key Investors worry that iPhone 5 may already be running out of steam

SAN FRANCISCO (MarketWatch) — Apple Inc. may report its first quarterly earnings decline in nearly 10 years Wednesday afternoon, though investors’ attention is already fixated on the company’s outlook amid worries of a rapid slowdown in iPhone 5 demand.

Apple

Apple’s results and forecast on Wednesday afternoon may shed light on whether demand for the iPhone 5 has peaked.

The launch of so many new products — including the iPhone 5 and iPad mini — in the last part of the year is expected to weigh on profit margins for Apple’s first fiscal quarter, which ended in December.

Still, Apple is expected to post sales growth of 19%, thanks to holiday-fueled demand for those new devices.

But most attention will be fixed on Apple’s AAPL +1.09%  guidance for the March quarter, amid reports that the company is cutting back production of the iPhone 5 less than four months after its launch, suggesting demand may have already peaked.

“It’s all about the guide,” Gene Munster of Piper Jaffray told MarketWatch, speaking about the forecast for the March quarter.

AAPL 510.25, +5.48, +1.09%

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It remained unclear how much weakness may already be baked into the stock, which has slid nearly 8% just this month and has shed more than one-quarter of its value since peaking above $700 in late September.

Steven Milunovich of UBS cut his price target on the stock to $650 from $700 — the shares ended Tuesday at $504.77 — but he added that “current levels are overly discounting the demand picture for Apple’s products, as well as future innovations and growth in new markets.”

Forecasts

For the December quarter, the company itself projected a 15% decline in earnings per share when it issued its last quarterly report, though analysts are modeling for a less drastic decline.

Apple is expected to report earnings of $13.47 per share, according to consensus estimates from FactSet, compared to earnings of $13.87 per share reported for the same period the previous year.

Revenue is expected to jump 19% to $54.9 billion, according to FactSet estimates.

The iPhone is still expected to drive the lion’s share of sales and earnings for the quarter. Apple is expected to ship approximately 48 million units of the iPhone in the December period, with some predicting that number could go higher than 50 million.

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Most analysts also expect between 22-23 million iPads to ship during the period, thanks to the launch of the iPad mini. Mac shipments are expected to total a little over 5 million units.

Questions about the health of the iPhone business will center on Apple’s forecast for the March quarter.

Analysts are currently predicting earnings of $11.77 per share for the current quarter — a decline of about 4% from the same period last year. Apple is known for guiding below Wall Street’s consensus targets, though analysts say if they go too low this time, they may confirm fears of an iPhone slowdown that could hurt the stock further.

“If they have a big miss for December but a phenomenal guide, the stock will go up,” Munster said. “But if they crush December but give a bad forecast, the stock is going to go down.”

Munster currently has a buy rating and $875 price target on Apple, though he has shifted some of his expected iPhone sales in the March quarter to the December period.