What iPhone? Apple earnings (still) about the Mac

The Mac will reclaim its rightful place as the most important story inside the Apple universe when the company reports its third-quarter earnings later on Monday.

One could be forgiven for overlooking the Mac coming off a month of iPhone 3G madness, but the iPhone will have played a tiny role in determining the strength of Apple's quarter, which came to a close in June. Analysts expect another strong quarter from the company's Mac division to lead Apple to revenue of $7.4 billion and earnings per share of $1.08.

But, as always seems to be the case, Wall Street tends to focus on the guidance for the current quarter. Almost without fail, Apple provides guidance well under what analysts are expecting: its own guidance for its third quarter is $7.2 billion in revenue and earnings per share of $1. Since everyone knows this, however, investors spin themselves silly trying to analyze what Apple is implying about the upcoming quarter by just how much it undercut the consensus prediction.

With economic concerns still hovering over Silicon Valley, and lackluster results from Google and Microsoft dinging the market on Friday, Apple's earnings will demand the attention of the business community Monday afternoon. Investors seemed skittish on Friday, sending the company's stock down almost 4 percent, against a 1.3 percent drop on the Nasdaq.

Mac attack
We already know that Mac shipments increased by 38 percent in the U.S. during the last quarter, courtesy of IDC. That's strong growth without any sort of real catalyst for Mac sales other than a speed bump for the iMac product line. The second quarter of the calendar year--Apple's third fiscal quarter--is usually the slowest time of the year for the PC industry before the back-to-school and holiday shopping seasons take hold in the second half of the year.

Gene Munster of Piper Jaffray expects Apple to announce Mac shipments of 2.35 million units, which would be a 33 percent bump in Mac shipments compared with last year. Shaw Wu of American Technology Research is even more optimistic, believing that Apple shipped 2.5 million Macs during the quarter.

Wrong number
Contrast that with the iPhone, which seems to get all the attention but will probably contribute just 700,000 units to Apple's haul during the past quarter. The company has admitted that it underestimated demand for the product during the quarter, forcing it to go about six weeks without selling a single iPhone.

The financial community doesn't seem all that worried about the fact that iPhone shipments would have declined so precipitously from the 1.7 million shipments Apple recorded in its second quarter. That's partly because even at those levels, each iPhone shipment adds relatively little revenue to Apple's results in a given quarter since iPhone revenue is recognized over a 24-month period; Apple only recorded $378 million in iPhone-related revenue during its second quarter.

Steady beat
The iPod continues to be a large business for Apple, even if it's no longer growing at the pace it once did. The Wall Street guestimates seem to put iPod shipments for Apple's third quarter at around 10.5 million units, which would be a decline from the company's second quarter and roughly flat with last year's third-quarter totals.

iPod revenue growth, however, is the metric to watch in this category. Apple has been trying to promote the iPod Touch as the future of its iPod lineup. Even if unit shipments are flat, revenue growth would imply that iPod buyers are moving on up the price curve in line with Apple's plan.

As I thought coming off Apple's last earnings conference call, the company had a solid--if not spectacular--quarter, gaining share and making money even with no major launches spurring adoption. With few surprises anticipated, expect most of the question-and-answer session between Apple executives and financial analysts to focus on the upcoming quarter.

Apple has already announced that it sold 1 million iPhone 3Gs in the first weekend the device went on sale around the globe, but expect analysts to poke around that number for more details on where the phones were sold, and how many were sold at Apple stores versus carrier stores. It will also be interesting if Apple finally acknowledges the widespread server problems that tainted the iPhone 3G launch, and whether that had an impact on the early days of the iPhone 3G.

iPhone supply is also likely to be a hot topic, with reports of lines continuing to plague Apple stores and outages at AT&T stores. Apple has proven it can manage a large, complicated supply chain with the Mac and the iPod, but has had problems with its supply chain during the first year of the iPhone: albeit the good kind. Apple faced some iPhone shortages after a smooth launch in June 2007; it imposed purchase limits on iPhones later that year to make sure it would have enough to go around during the holiday season; and it ran out of iPhones midway through May.

Some cynics might think this is all a ploy to drive up demand, but it would be an expensive ploy: I suspect Apple and its investors would much rather see iPhone sales flowing uninterrupted. Just ask Nintendo.

Apple isn't exactly a bellwether for the tech industry, but it has a pretty good hold on the consumer technology zeitgeist at the moment. Monday's numbers present one of the four opportunities a year to see Apple's report card and check whether that hold continued for another quarter.