Apple reports Q3 earnings on Tuesday — Here's what to expect

Apple's new iPhone 12 line gets 5G cellular technology, but don't expect the new standard to change your life overnight. (Image: Apple)

Apple’s iPhone 12 is expected to continue to dominate in Q3. (Image: Apple)

Apple (AAPL) is set to report its Q3 2021 earnings after the closing bell on Tuesday, and analysts predict strong iPhone sales performance. But a predicted slowdown in future quarters for App Store revenue, thanks to vaccine-related reopenings and tough comparisons to 2020, could send guidance for the coming quarters lower.

Here’s what Wall Street is expecting from Apple, as compiled by Bloomberg, versus how it performed in the same quarter last year.

  • Revenue: $73.8 billion expected versus $59.7 billion in Q3 2020

  • Earnings per share: $1.01 expected versus $2.58 in Q3 2020

  • iPhone revenue: $34.5 billion expected versus $26.4 billion in Q3 2020

  • Services revenue: $16.3 billion expected versus $13.2 billion in Q3 2020

According to analysts, the iPhone 12 will prove to be a continued boon for Apple in Q3 2021 as demand for the smartphone soars on the back of its inclusion of 5G capabilities. The 12 has been a major seller for Apple, driving impressive growth in sales for the company at a time when smartphone sales were declining.

BofA’s Wamsi Mohan estimates that Apple will report sales of 46 million iPhones, compared to Wall Street estimates of 43 million phones, for an 18% year-over-year increase in sales.

Wedbush’s Dan Ives offered similar sentiment in his analyst note, saying that consensus estimates fall short of reality.

“The Street is looking for $73 billion and $1.00 of earnings, both of which look likely conservative given the underlying iPhone strength we saw during the quarter with a particular uptick in demand out of China,” he wrote.

“While the chip shortage was an overhang for Apple during the quarter, we believe the iPhone and Services strength in the quarter neutralized any short term weakness that the Street was anticipating three months ago.”

It’s not just iPhone sales that will drive the quarter, though. Mohan says pandemic-driven iPad and Mac sales will give Apple a boost, as well.

“In our opinion, hardware sales remain strong for iPhones, iPads and Macs, and the company continues to benefit from increased spending on electronics given the remote work/home environment,” he wrote in a note.

While hardware sales are expected to prove robust for the quarter, analysts say App Store sales could be on the downslope as people start to venture from their couches following coronavirus shutdowns.

“Third party data on developer revenues indicates that Apple global App store revenue grew 16% [year-over-year] in F3Q21 (Mar quarter), while global downloads declined 14% [year-over-year] partly on tough compares and on continued economic reopening. This is a significant slowdown from the 31% [year-over-year] App store growth seen last quarter,” Mohan wrote.

But Apple’s next-generation iPhone, let’s call it the iPhone 13 for now, could help offset future App Store sales slowdown. That device, which is expected to launch in September, barring any unforeseen issues, could help push sales of the smartphone even higher than the iPhone 12, thanks to the fact that people going back into the world will want the latest devices to show off and that take advantage of the latest tech.

According to Bloomberg, Apple told its suppliers to build 90 million iPhones. That’s a massive jump from the 75 million the company ordered in 2020.

“Asia supply chain builds for iPhone 13 are currently in the 90 million to 100 million unit range compared to our initial iPhone 12 reads at 80 million units (pre-COVID) and represents a 15% increase [year-over-year] out of the gates,” Ives wrote.

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